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North Carolina
Tax Guide
2010
Office of State Budget and Management
20320 Mail Service Center
Raleigh, NC 27699-0320
919/807-4700
http://www.osbm.state.nc.us
ii
PREFACE
The Office of State Budget and Management prepares the North Carolina Tax Guide annually.
The Guide provides an overview of North Carolina's tax structure including General Fund,
Highway Fund, Highway Trust Fund, and local government taxes. The information contained
herein is intended for state lawmakers and planners, the business community, public interest
groups, and individuals. The North Carolina Tax Guide is not available in hard copy. If further
information is required, please contact this office at 919-807-4700.
iii
TABLE OF CONTENTS
PART I. INTRODUCTION
Overview.........................................................................................................................................3
Tax Burden......................................................................................................................................4
Chart 1. Tax Collections Received By North Carolina Governments (2009-10) ............................5
Chart 2. North Carolina State Tax Collections (2009-10) ...............................................................6
PART II. GENERAL FUND TAXES
General Fund Taxes .........................................................................................................................9
Chart 3. North Carolina General Fund Tax Collections (2009-10) ................................................9
Alcoholic Beverage Tax ................................................................................................................10
Cigarette/Tobacco Tax...................................................................................................................14
Corporate Income Tax ...................................................................................................................16
Estate Tax......................................................................................................................................21
Franchise Tax................................................................................................................................23
Freight Car Tax ..............................................................................................................................26
Gift Tax.........................................................................................................................................27
Individual Income Tax...................................................................................................................29
Insurance Tax................................................................................................................................33
Manufacturing Tax.........................................................................................................................35
Piped Natural Gas Tax...................................................................................................................36
Privilege License Tax ....................................................................................................................38
Sales and Use Tax..........................................................................................................................40
PART III. HIGHWAY FUND TAXES
The Highway Fund ........................................................................................................................47
Chart 4. North Carolina Highway Fund Tax Collections (2009-10) ............................................48
Dealer and Manufacturer License Fees..........................................................................................49
Driver's License Fees .....................................................................................................................51
Financial Security Restoration Fees...............................................................................................54
Gasoline Inspection Tax ................................................................................................................56
International Registration Plan ......................................................................................................58
Motor Fuels Excise Tax.................................................................................................................60
Overweight/Oversize Permits ........................................................................................................64
Penalties ........................................................................................................................................65
Registration Fees...........................................................................................................................67
Safety Equipment Process Fees .....................................................................................................69
Staggered Registration Fees...........................................................................................................71
Truck License Plate Fees ...............................................................................................................73
iv
PART IV. HIGHWAY TRUST FUND TAXES
The Highway Trust Fund ...............................................................................................................77
Chart 5. North Carolina Highway Trust Fund Tax Collections (2009-10)...................................78
Highway Use Tax ..........................................................................................................................79
Lien Recording Fees ......................................................................................................................81
Motor Fuels Excise Tax.................................................................................................................82
Title and Registration Fees ............................................................................................................85
PART V. LOCAL GOVERNMENT TAXES
Local Government Tax Revenues..................................................................................................89
Chart 6. North Carolina Tax Collections Received by Local Government (2009-10) .................90
Excise Tax on Beer and Wine - Local Share .................................................................................91
Excise Tax on Conveyances ..........................................................................................................93
Land Transfer Tax..........................................................................................................................95
Liquor By-The-Drink Tax..............................................................................................................96
Prepared Meals Tax .......................................................................................................................97
Privilege License Tax ....................................................................................................................99
Property Tax................................................................................................................................100
Room Occupancy Tax..................................................................................................................103
Sales and Use Tax........................................................................................................................104
Scrap Tire Disposal Tax...............................................................................................................106
Utility Excise Tax ........................................................................................................................107
White Goods Disposal Tax ..........................................................................................................109
PART VI. COMPARISON OF NORTH CAROLINA TAX COLLECTIONS
WITH THOSE OF OTHER STATES
Table 1. Level and Percentage Distribution of State and Local Tax Collections
by Source for 2007-08 ...........................................................................................................113
Table 2. State Ranking of State and Local Tax Burden, Per Capita and Percent
Personal Income for 2007-08.................................................................................................115
Table 3. State and Local Tax Collections, Per Capita and as a Percent of
Personal Income, for the United States, the Eleven Most Populated States, and the
Southeast, 2007-08.................................................................................................................117
Table 4. Percentage Distribution of State and Local Taxes by Type of Tax for
the United States, Eleven Most Populated States, the Southeast, and North
Carolina, 2007-08 ..................................................................................................................119
Table 5. Per Capita State and Local Tax Collections by Type of Tax for the United States,
Eleven Most Populated States, the Southeast, and North Carolina, 2007-08 ........................120
Table 6. State and Local Tax Collections as a Percent of Personal Income by Type
of Tax for the United States, Eleven Most Populated States, the Southeast,
and North Carolina for 2007-08.............................................................................................120
PART I
INTRODUCTION
2
3
OVERVIEW
The Tax Guide is designed to give the reader an overview of the tax structure of both state and
local governments of North Carolina. It contains a concise summary of each North Carolina tax
law, a statement of the tax calendar, and the growth and distribution of tax collections. Whenever
possible, comparisons of North Carolina tax laws with those of other states are presented.
The Tax Guide consists of six sections. Part I is the Introduction. The overall scope of the Tax
Guide is discussed in this section, along with an explanation of tax burden. Summaries of the tax
laws governing North Carolina's General Fund, Highway Fund, Highway Trust Fund, and local
government taxes follow in Parts II, III, IV and V.
In the last section, Part VI, an analysis is given of the total state and local tax burden in North
Carolina in comparison to that of other states. Tax burdens are evaluated on a per capita and
percentage of personal income basis. Special emphasis is made to compare North Carolina with
the six southeastern states and the eleven most populated states.
For information on recent tax legislation, see the 2010 Legislative Overview at:
http://www.ncga.state.nc.us/FiscalResearch/
4
TAX BURDEN
Tax burden measures the impact of a tax on the purchasing power of an individual or a business.
An understanding of tax burden is important in evaluating who pays a tax, how much is paid, and
in comparing tax efforts among different states.
Tax burden is the amount of sacrifice individuals make when paying their taxes. In its simplest
form, tax burden can be measured in terms of the number of dollars of an individual's income
that must be dedicated to tax payments. The more dollars an individual must sacrifice the greater
the tax burden.
Two common measures of tax burden are per capita tax payments and taxes paid as a percentage
of personal income. The per capita tax payment is the average amount of taxes paid by each
individual. It is found by dividing total state and local tax payments of a state by the population
of the state.
EXAMPLE
The population of State A is 100. The state and local tax burden of all the tax payers in State A is
$50,000. State B has a population of 75 citizens who have a combined state and local tax burden
of $30,000. The per capita tax payments in each state are determined as follows:
Per Capita Tax Payments = Total State and Local Taxes Paid = $50,000 = $500
(State A) Total State Population 100
Per Capita Tax Payments = Total State and Local Taxes Paid = $30,000 = $400
(State B) Total State Population 75
Taxes paid as a percentage of personal income are found by dividing the total amount of state
and local taxes paid by the total state personal income. For instance, suppose the citizens of
State A have a total income of $1,000,000 while the citizens of State B have a total income of
$400,000. Taxes paid as a percentage of personal income are found as shown below:
Taxes Paid as a Percentage of = Total State and Local Taxes Paid = $50,000 = 5%
Personal Income (State A) Gross State Personal Income $1,000,000
Taxes Paid as a Percentage of = Total State and Local Taxes Paid = $30,000 = 7.5%
Personal Income (State B) Gross State Personal Income $400,000
Taxes paid as a percentage of personal income are a better measure of tax burden than per capita
tax payments. In the above example, the average citizen in State A paid more taxes than the
average citizen in State B. Citizens in State A had a higher per capita tax burden. However,
since the average income of citizens in State A was much higher than that of State B, they
sacrificed a smaller portion of their income in tax payments. Obviously, their tax burden in
terms of real sacrifice (amount of private consumption given up to pay taxes) was less. The
5
concept of tax burden is frequently used in Part VII to analyze the tax effort of citizens of North
Carolina compared to the tax burden of citizens of other states.
State Taxes $ 20,386,834,738
Local Taxes 11,204,908,485
Total $ 31,591,743,223
Chart 1
State and Local Tax Collections
2009 - 10
Local Taxes
35%
State Taxes
65%
6
General Fund $ 17,746,040,209
Highway Fund 1,731,643,883
Highway Trust Fund 909,150,646
Total $ 20,386,834,738
Chart 2
North Carolina State Tax Collections
2009 - 10
General Fund
87.0%
Highway Fund
8.5%
Highway Trust
Fund
4.5%
PART II
GENERAL FUND TAXES
8
9
GENERAL FUND TAXES
General Fund tax revenues are used to finances state administered programs such as education,
public health, public safety, and the general services of state government.
The General Fund receives support from twelve primary sources. An income tax is levied on
individuals and businesses if some or all of their income is derived from North Carolina sources
during the tax year. Other business taxes, such as the franchise tax and privilege license taxes are
levied for the right to do business in and be protected under the revenue laws of this state.
Consumption related taxes, such as an excise tax, serve to control the consumption and
distribution of controlled substances. The sales tax is levied on most retail transactions. The use
tax applies when tangible personal property is purchased outside the state for consumption
within the state. The sales and use tax also applies to the lease of tangible personal property. An
estate tax is levied on the value of all property transferred at death. The gift tax is levied when
someone gives away money or an asset without receiving fair market value.
Each summary outlines the subject being taxed, the tax rate or rates, total collections, any
distributions made from the collections, and any exemptions. A comparison with similar taxes
from other states is made for most schedules and is updated as often as national data is available.
Individual Income $ 9,047,605,408
Corporate Income 1,197,865,423
Sales and Use 5,565,043,256
Franchise 724,451,377
Other 1,211,074,745
Total $ 17,746,040,209
Chart 3
North Carolina General Fund Tax Collections
2009-10
Individual Income
51%
Corporate Income
7%
Sales and Use
31%
Franchise
4%
Other
7%
10
ALCOHOLIC BEVERAGE TAX
Alcoholic beverage taxes are levied on beer, fortified and unfortified wines, and spirituous
liquor. Beer and wine are sold through retail outlets. The sale of spirituous liquor is administered
through local ABC boards and sold only in local ABC stores. Alcoholic beverages can only be
sold in those counties and cities for which such sales have been authorized.
ADMINISTERED BY
Department of Revenue and the Alcoholic Beverage Control Commission
Table 1
General Fund Excise Tax on Alcoholic Beverages
Annual Percent of
General Fund Percent General Fund Tax
Fiscal Year Collections Change Collections
2002-03 170,896,552 -2.2 1.4
2003-04 182,392,510 6.7 1.3
2004-05 189,308,658 3.8 1.2
2005-06* 200,845,242 6.1 1.2
2006-07 212,608,231 6.0 1.1
2007-08 225,125,416 6.0 1.2
2008-09 228,458,572 1.5 1.4
2009-10 282,316,942 24.0 1.6
*Partial year collection at combined state and local sales and use tax rate, effective
October 1, 2005. {G.S. 105-164.4(7)}
BASE AND RATE
Wholesalers and importers remit the excise taxes on beer and wine. Local alcoholic beverage
control boards remit the excise taxes on spirituous liquor.
{G.S. 105-113.80} Excise taxes on beer, wine, and spirituous liquors
• Beer is taxed at a rate of 61.71 cents per gallon. (Equivalent rate 5.8 cents/can.)
• Unfortified wine is taxed at 26.34 cents per liter.
• Fortified wine is taxed at 29.34 cents per liter.
• Spirituous liquor is taxed at 30% of case cost plus local board mark-up.
{G.S. 18B-804} Mark-up for local ABC Boards
An additional 3.5% levy on the retail price is allocated as part of ordinary profits of the ABC
store to the respective localities where the ABC store is located. Similarly, an add-on tax of 5
cents and 1 cent (mini bottle) per bottle of liquor sold in ABC stores is levied, with the revenue
distributed to local governments in the same manner as profits from the ABC stores.
11
By authorization of local elections, liquor “by the drink” may be sold by qualified restaurants
and clubs. Liquor sold by the drink in restaurants and clubs is subject to an additional tax of $20
per 4 liters. Liquor sold through a guest room cabinet is also taxed at $20 per 4 liters rate.
{G.S. 18B-902} Applications for Permits issued by NC Alcoholic and Beverage Control
Commission:
• To sell either malt beverages, fortified wine, or unfortified wine on premises - $400
• To sell either malt beverages, fortified wine, or unfortified wine off premises - $400
• Brown bagging permit for an establishment seating 50 or more - $400
o An establishment seating less than 50 - $200
• Special occasion permit - $400
o Limited special occasion permit - $50
• Mixed beverage or guest room cabinet permit - $1,000
• Culinary, winery special event, or mixed beverage catering permit - $200
• Unfortified and fortified winery, limited winery, brewery, distillery, wine importer and
wholesaler, malt beverage importer and wholesaler, or bottler permit - $300
• Fuel alcohol permit - $100
• Salesman permit - $100
• Vendor representative permit and certain special one-time permits - $100
• Nonresident malt beverage vendor or nonresident wine vendor permit - $100
• Liquor importer and bottler permit - $500
• Special wine tasting permit for wineries - $300, and for retail establishments - $100.
LOCAL GOVERNMENT DISTRIBUTION
{G.S. 105-113.82} State, Local Government, and Special Earmark Revenue
Local governments, for which the sale of beer and wine has been authorized, receive 23.75% of
the excise tax on malt beverages, 62% of the excise tax on unfortified wine, and 22% of the
excise tax on fortified wine. The remaining revenue is deposited into the General Fund for
general purposes.
{G.S. 105-113.81A} Revenue deposited in the General Fund is used for general purposes except
for $900,000 in excise tax collections on unfortified wine bottled in North Carolina. This revenue
is allocated to the Department of Commerce for the promotion of N.C. grapes. Of the $20 per
four liters levy on alcohol used for liquor by-the-drink sales, $10 goes to the General Fund, $1 to
the Department of Human Resources, and $9 to the local governments where the sales took
place. In addition, the 5 cents and the 1 cent per bottle “add-on” tax on all alcohol sold in
Alcoholic Beverage Control (ABC) stores goes to county commissioners for rehabilitation of
alcoholics.
{G. S. 18B-805(4) & C (1)} Local governments that have approved the sale of spirituous liquor
receive a portion of the profits. The local ABC Board pays quarterly, to the general fund of the
county or city for which the board is established, the sum of 3.5% mark-up, 1 cent per 50
milliliter bottle or less, and 5 cents on each bottle greater than 50 milliliter. The remaining
revenue is deposited into the General Fund for general purposes.
12
TAX CALENDAR
{G.S. 105-113.83} Wholesalers and importers of beer and wine, and ABC Boards must file
returns including monthly tax payments by the fifteenth day of the month for the previous
month’s activities.
COMPARISON WITH OTHER STATES
All fifty states levy alcoholic beverage taxes. Eighteen states, including North Carolina, sell
spirituous liquor only in state-licensed stores. Tax rates vary considerably as each state enacts
different tax rates on beer, wine, and spirituous liquors. Because of the wide variety of laws, it is
difficult to make an exact comparison of North Carolina’s laws with those of other states.
However, the following comparison will give the reader a good approximation of the relative tax
burdens.
The latest complete survey on the taxation of alcoholic beverages is for calendar year 2007 and
consists of the combined revenue per wine gallon from all state and local taxes, fees, and levies
on alcoholic beverages.
Taxes on beer range from $0.11 per gallon to $2.48 per gallon. The average overall tax rate for
the nation is $1.12 per gallon, while the average rate for the six southeastern states (1) stands at
$1.31 and $1.18 for the eleven most populated states (2). North Carolina’s rate is $1.35 per
gallon. North Carolina ranks eleventh in the nation, third among the controlled states, third
among the six southeastern states, and third among the eleven most populated states.
Taxes on wine range from $0.77 per gallon to $9.24 per gallon. The average overall tax rate for
the nation is $.67 per gallon, while the average rate for the six southeastern states stands at $3.96
and $4.00 for the eleven most populated states. North Carolina’s rate is $4.71 per gallon. North
Carolina has the seventh highest tax rate in the nation, while first among the six southeastern
states, third among the eleven most populated states and fifth among the control states.
Taxes on distilled spirits range from $3.96 per gallon to $36.51 per gallon. The average overall
tax rate for the nation is $16.68 per gallon, while the average rate for the six southeastern states
stands at $18.73 and $18.00 for the eleven largest states. North Carolina’s rate is $29.96 per
gallon. North Carolina has the forth highest combined tax rate in the nation, while second
among the six southeastern states, third among the eleven most populated states, and seventh
among the control states.
(1) Georgia, Kentucky, North Carolina, South Carolina, Tennessee, and Virginia.
(2) California, Georgia, Florida, Illinois, Michigan, Ohio, Pennsylvania, New Jersey,
New York, North Carolina, Texas.
13
Table 2
Revenue per Gallon from Combined State and Local Tax Collections
STATES BEER WINE SPIRITS
United States $ 1.12 $ .67 $ 16.68
Six Southeastern States 1.31 3.96 18.73
Eleven Largest States 1.18 4.00 18.00
Surrounding States
Georgia 1.73 4.18 12.94
Kentucky 1.00 4.64 13.18
North Carolina 1.35 4.71 29.96
South Carolina 1.11 2.36 10.86
Tennessee 1.69 4.22 16.15
Virginia 0.99 3.62 29.26
Source: Distilled Spirits Council of the United States, Inc. "Public Revenues from Alcohol
Beverages, 2007," Washington, D.C., January, 2009.
14
CIGARETTE/TOBACCO TAX
All tobacco products including cigarettes, pipe tobacco, and smokeless tobacco are subject to a
state excise tax. This tax is levied on the sale or possession of tobacco products in the state by a
distributor.
ADMINISTERED BY
Department of Revenue
Table 3
General Fund Excise Tax on Tobacco Products
Annual Percent of
General Fund Percent General Fund Tax
Fiscal Year Collections Change Collections
2001-02 41,531,347 -1.2 0.3
2002-03 41,998,713 1.1 0.3
2003-04 43,732,769 4.1 0.3
2004-05 42,981,044 -1.7 0.3
2005-06* 171,636,758 300.0 1.0
2006-07 241,174,320 41.0 1.3
2007-08 237,377,533 -1.6 1.3
2008-09 227,056,891 -4.35 1.4
2009-10 251,730,957 11.0 1.4
* Prior to the legislative change effective July 1, 2006, the tax rate was 5 cents per pack.
BASE AND RATE
{G.S. 105-113.5} A tax rate of 45 cents per pack of 20 cigarettes is levied on distributors
effective September 1, 2009. The rate per cigarette is 2.25 cents.
{G.S. 105-113.35} The excise tax levied on tobacco products other than cigarettes is 12.8% of
the cost price of the product.
{G.S.105-113.36} A $25 license fee is levied on wholesale dealers, and a $10 license fee is
levied on retail dealers for each place where a wholesale or retail dealer makes tobacco products
other than cigarettes, or receives or stores non-tax-paid tobacco products.
DISTRIBUTION
Revenue is deposited in the General Fund for general purposes.
TAX CALENDAR
{G.S. 105-113.37} Distributors, wholesalers, and retailer dealers file monthly returns with
payment of tax by the twentieth of each month for the previous month's activity.
15
COMPARISON WITH OTHER STATES
All states levy an excise tax on cigarettes. Tax rates, per pack of 20 cigarettes, range from 7 cents
to $3.46 per pack. Municipalities in six states can levy additional cigarette taxes. The median
tax for the nation was 118 cents per pack and North Carolina ranks 43rd in the nation with an
excise tax rate of 45 cents per pack.
Table 4
Distribution of State Cigarette Tax Rates
January 1, 2008
Cents Per Pack Number of States
Below 9 cents 1
10 cents to 49 cents 7
50 cents to 99 cents 15
100 cents to 149 cents 7
150 cents to 199 cents 6
Above 200 cents 14
Source: Federation of Tax Administrators, “State Excise Tax Rate on Cigarette, January 2010”,
Washington, DC. March 2010.
16
CORPORATE INCOME TAX
All corporations, both domestic and foreign, that do business in this state are required to file
annual income tax returns unless exempt from the corporate income tax.
ADMINISTERED BY
Department of Revenue
Table 5
General Fund Corporate Income Tax Collections
Annual Percent of
General Fund Percent General Fund Tax
Fiscal Year Collections Change Collections
2001-02 409,322,540 -11.1 3.3
2002-03 840,499,824 105.3 3.7
2003-04 776,964,847 -7.6 5.6
2004-05 1,193,529,164 53.6 7.7
2005-06 1,204,102,940 .9 7.1
2006-07 1,451,399,198 21.0 8.0
2007-08 1,111,668,852 -23.4 6.0
2008-09 835,544,512 -24.8 5.0
2009-10 1,197,865,423 43.4 7.0
BASE AND RATE
Temporary tax surcharge effective for tax years 2009 and 2010
All corporations subject to the corporate income tax are required to pay a 3% income tax
surcharge on North Carolina income. The surcharge is applied before the deduction of any
qualified tax credits or payments.
{G.S. 105-130.3 & G.S. 105-130.4} An income tax is levied on the net taxable income of all
corporations chartered in North Carolina (domestic) and foreign corporations doing business in
the state. In computing state net income, a corporation uses the net taxable income (as defined in
the Internal Revenue Code) rate in effect for the income year for which the returns are filed. The
applicable corporate income tax rate is 6.9%.
Multi-state corporations, those corporations that have taxable nexus in at least one state other
than North Carolina, are required to use a specific formula to determine taxable income to North
Carolina. The allocation formula used is a three-factor formula with a double weighting of the
sales factor. The formula is the average of the corporation’s ratio of capital stock, payroll, and
sales made within North Carolina to the totals of these factors, where the sales factor is double
weighted.
17
Three Factor Formula Details
Property Factor {G.S. 105-130.4, 17 NCAC 05C.0800}
The property factor includes all real and tangible property, employed by the corporation
during the income year and used to produce apportionable income.
Payroll Factor {G.S. 105-130.4, 17 NCAC 05C.0900}
The payroll factor includes the total amount of compensation paid in connection with earning
apportionable income during the income year.
Sales Factor {G.S. 105-130.4, 17 NCAC 05C.1000}
The sales factor means all gross receipts derived from transactions and regular business
activities in the course of its regular business operations.
EXEMPT CORPORATIONS
{G.S. 105-130.11} The following corporations are exempt from the North Carolina corporate
income tax. A more thorough list can be found in the General Statutes.
1. Fraternal beneficiary societies, operating for the exclusive benefit of the members
2. Co-operative banks organized for mutual purposes without profits and capital stock
3. Cemetery corporations and religious corporations
4. Business leagues, chambers of commerce, merchants associations, etc.
5. Insurance companies subject to the tax on gross premiums
6. Telephone membership and electric membership corporations
7. Organizations marketing the products of its members
8. Civic leagues organized for the purpose of promoting social welfare
9. Homeowner associations.
{G.S. 105-131.11} The taxation of the profit from an S-corporation is not subject to the 6.9%
corporate income tax rate. Rather, the pro rata share of the stockholder’s profits from an S-corporation
is subject to North Carolina’s individual income tax. Part-year resident shareholders
and nonresident shareholders of an S-corporation must also pay the tax. Part-year and
nonresident shareholders of an S-corporation pay the tax based on ratios of attributable and non-attributable
income to the state, during the tax year, and on the number of days the shareholder
resides in the state or in some other state during the tax year. S-corporations may claim the
credits and deductions for nonresident shareholders who elect not to file individual income tax
returns in North Carolina.
CORPORATE TAX CREDITS
North Carolina provides many corporate income tax credits. To qualify for credits, companies
must meet various criteria. The credits often apply to a portion of expenditures, and are subject
to maximum allowable amounts. Listed are some of the credits certain corporations are allowed
when filing a North Carolina corporate income tax return. Please refer to the Revenue Laws of
North Carolina for a more detailed list.
18
{G.S. 105-130.22} Credit for constructing a dwelling for handicapped persons
Corporate owners of multi-family rental units are allowed a credit of $550.00 for each dwelling
unit constructed for physically handicapped persons during the income year.
{G.S. 105-130.25} Credit for constructing a co-generating power plant
Any corporate entity, other than a utility, that constructs a co-generating power plant is allowed a
10% credit of the cost to purchase and install the electrical or mechanical power generating
equipment.
{G.S. 105-130.34} Credit for donating real property for conservation purposes
Corporations that make a donation in perpetuity of interest in real property are allowed a 25%
credit of the fair market value of the property.
{G.S. 105-130.36} Credit for conservation tillage equipment
Corporations that purchase conservation tillage equipment to be used in the farming process and
in the tree cultivation process are allowed a 25% credit of the cost of the equipment.
{G.S. 105-130.37} Credit for gleaned crop
Corporations that grow and allow the gleaning of a crop are allowed a credit of 10% of the
market price of the quantity of the crop.
{G.S. 105-130.39} Credit for certain telephone subscriber line charges
Corporations that provide local telephone services to low income residential customers at
reduced rates are allowed a credit equal to the difference in the discount rate and what the
customer would have paid had regular rates been charged.
{G.S. 105-130.41} Credit for use of North Carolina Ports
An income tax credit equal to 50% of a corporation’s income tax liability is allowed to those
corporations who use the state ports to load cargo onto or unloaded cargo from an ocean going
carrier.
{G.S. 105-130.44} Credit for poultry composting facility
Corporations that construct a poultry composting facility are allowed a credit of 25% of the cost
of installation, materials, and equipment costs of construction of such a facility during the
income year.
{G.S. 105-130.46} Credit for manufacturing cigarettes for export, increasing employment,
and utilizing state ports
Any corporation that manufactures cigarettes for export through the state ports and meets certain
employment levels is allowed a credit of 40 cents per one thousand cigarettes exported.
{G.S. 105-130.47} Credit for qualified expenses of a production company
Any production company that has qualified expenses of $250,000 or more is allowed a credit of
15% of the company’s qualified expenses for the income year.
19
{Article 3A of Chapter 105} Quality job and business expansion credits
The William S. Lee Quality Jobs and Business Expansion Act provides tax credit to corporate
taxpayers for investments in manufacturing machinery and equipment, job creation, research and
development, and work force training. The credits are based on a system that divides the state
into five enterprise zones. Each county in a zone is given a tier rank with tier one being the most
economically distressed and tier five being the least economically distressed. Taxpayers must
meet certain eligibility requirements and provide defined business development and expansion in
a zone to receive one of several allowed corporate income tax credits.
DISTRIBUTION
{G.S. 115C-546.1(b)} Revenue is deposited in the General Fund for general purposes, except for
2/31st of each previous quarter's collection, which is transferred to the Public School Building
Capital Fund. Only General Fund revenue is shown above.
TAX CALENDAR
{G.S. 105-130.17} Corporations are required to file a corporate tax return on or before the
fifteenth day of the third month following the close of the corporation’s income year. Some
mutual associations are required to file by the fifteenth of September following the close of the
calendar year and those associations that operate on a fiscal year basis file on or before the
fifteenth day of the ninth month following the close of the fiscal year. Exempt organizations that
are required to file a return file on their unrelated business income by the fifteenth day of May
following the close of the calendar year and those operating on a fiscal year file their return on or
before the fifteenth day of the fifth month following the close of the fiscal year. {G.S. 105-
131.7} S Corporations file their annual return by the due date for C Corporations.
COMPARISON WITH OTHER STATES
Forty-five states levy corporate income taxes. Most states follow the federal definition of
income. Of the 44 states levying corporate income taxes, 25 states had a higher marginal rate
than North Carolina, while 18 states had a lower marginal rate.
Table 6
Distribution of State Corporate Income Tax Rates
As of January 2009
Highest
Marginal Rate Number of States
Below 5.0% 9
5.0% to 5.9% 4
6.0% to 6.9% 13
7.0% to 7.9% 8
8.0% to 8.9% 10
9.0% to 9.9% 5
10.0% and above 1
20
Source: Federation of Tax Administrators, “State Excise Tax Rate on Cigarette, January 2010”,
Washington, DC. March 2010.
21
ESTATE TAX
In 1999, North Carolina repealed the inheritance tax in favor of the estate tax. An estate tax is
imposed on the right to transfer property at death and is not based on the relationship of the
beneficiaries.
ADMINISTERED BY
Department of Revenue
Table 7
General Fund Estate Tax Collections
BASE AND RATE
{G.S. 105-32.1} For decedents dying on or after January 1, 2005, the amount of North Carolina
estate tax imposed is the amount of the state death tax credit that, as of December 31, 2001,
would have been allowed under section 2011 of the Code against federal taxable income. The
tax may not exceed the amount of the federal estate tax due under the Code. The federal taxable
estate and the amount of the federal estate tax due are determined without taking into account the
deduction for state death taxes allowed under section 2058 of the Code, and the credits allowed
under sections 2011 through 2015 of the Code. {G.S. 105-32.2}
North Carolina conformed to the federal estate tax by increasing the exemption from $1.5
million to $2.0 million effective January 1, 2006.
DISTRIBUTION
Revenue is deposited in the General Fund for general purposes.
Annual Percent of
General Fund Percent General Fund Tax
Fiscal Year Collections Change Collections
2001-02 104,750,885 -15.0 1.0
2002-03 112,504,407 7.4 1.0
2003-04 128,479,443 14.2 1.0
2004-05 135,211,344 5.2 1.0
2005-06 133,379,473 -1.4 1.0
2006-07 161,586,810 21.2 1.0
2007-08 158,764,850 -2.0 1.0
2008-09 104,256,014 -34.3 1.0
2009-10 71,905,766 -31.0 0.4
22
TAX CALENDAR
A North Carolina estate tax return is due and payable on the date the federal estate tax return is
due and payable. Interest accrues on any unpaid tax beginning nine months after the date of
death.
COMPARISON WITH OTHER STATES
Over the past 20 years, most states have repealed their inheritance tax and retained the federal
estate death tax credit, also referred to as the state pick-up tax. In 2001, the federal government
passed the Economic Growth and Tax Relief Act which repealed the federal death tax credit over
four years. However, with the passage of the Act, many states began eliminating their estate
taxes completely. As of February 2004, 28 states were scheduled to repeal their estate,
inheritance, or succession taxes starting in 2005. Some of the remaining states continue to retain
a revenue stream from an inheritance tax or an estate tax by remaining linked to federal law as it
existed prior to 2001. The states that decoupled from federal law continue to levy stand-alone
inheritance or estate taxes and are unaffected by the federal legislation.
Fourteen states decoupled and continue to levy an estate tax that is very similar to the state pick-up
tax. Three states replaced their pick-up tax with estate taxes: Connecticut, Kansas and
Washington State. Kansas created a separate rate schedule and, effective January 1, 2006,
increased the exemption to $2 million; in 2009 the exemption increases to $3 million. Maine has
permanently decoupled with a $1 million exemption.
Seven states levy an inheritance or estate tax that was never tied to the federal estate death tax
credit. Maryland, Nebraska, and New Jersey levy an inheritance tax and an estate tax that is
similar to the pick-up tax prior to the 2001 federal act.
Effective for tax year 2006, the portion of the federal estate tax that is exempt from taxation was
$2 million per individual and $4 million per couple. In 2009, the exemption increases to $3.5
million per individual or $7 million per couple culminating in a full repeal in 2010.
As of March 2006, seventeen states and the District of Columbia have retained their estate taxes
after the federal changes. Of these, thirteen states, including North Carolina, acted to decouple
from the federal changes. Four states and the District of Columbia will remain decoupled unless
they take legislative action.
Sources:
• Commerce Clearing House, Inc. “State Tax Handbook”. Chicago, Illinois, 2010.
• Joel Michael, Legislative Analyst, “State Response to the 2001 Federal Estate Tax
Credit”. Minnesota House of Representatives, February 2004.
• Elizabeth C. McNichol, “State Taxes on Inherited Wealth Remain Common: 24 States
Levy an Estate or Inheritance Tax”, Center on Budget and policy Priorities, Washington
DC. 2006.
23
FRANCHISE TAX
A franchise tax is levied on domestic and foreign corporations, associations, joint stock
companies, trust, and any other organization which has capital stock represented by shares and
enjoys corporate powers, rights, and privileges under the laws of North Carolina.
ADMINISTERED BY
Department of Revenue
Table 8
General Fund Franchise Tax Collections
Annual Percent of
General Fund Percent General Fund Tax
Fiscal Year Collections Change Collections
2000-01 580,431,850 89.1 4.6
2001-02 446,270,680 -23.1 4.0
2002-03 429,128,005 -4.0 4.6
2003-04 445,294,486 3.8 3.2
2004-05 498,681,391 12.0 3.2
2005-06 477,055,108 -4.3 3.0
2006-07 531,412,140 11.4 3.0
2007-08 574,460,805 8.1 3.0
2008-09 651,938,670 13.5 4.0
2009-10 724,451,377 11.1 4.1
BASE AND RATE
{G.S. 105-122} The franchise tax includes taxes on persons, partnerships, and certain
corporations both foreign and domestic for the privilege of doing business in the state.
The franchise tax is computed by applying the rate of $1.50 per $1,000.00 to the largest of the
three bases:
• Capital stock, surplus, and undivided profits apportioned to the state
• The net accounting value of real and tangible property in the state
• 55% of the appraised value of property subject to the property tax.
The minimum tax liability is $35.00, with no maximum except for qualified holding companies.
Corporations doing business in North Carolina and in other states calculate the share of capital
stock tax due to North Carolina by the same method used for the corporate income tax: the
average of the corporation’s shares of property, payroll and sales, with the sales factor double
weighted.
24
{G.S. 105-114.1} Limited Liability Companies
Limited liability companies are exempt from the franchise tax. However, if a corporation or an
affiliated group of corporations owns more than 50% of the capital interest in a limited liability
company, the corporation or group of corporations must include in its three tax bases (capital
stock, surplus, and undivided profits) the limited liability company’s appraised ad valorem tax
value of property and the company’s actual investment in tangible property in the state.
{G.S. 105-116} Power and Light, Water, and Sewerage Companies
A 3.22% tax rate is applied to the total gross receipts resulting from the sale of electricity in the
state, less certain allowable deductions. Water companies are taxed at 4.0% and public sewage
companies are taxes at 6.0%. In addition, power and light utility services are also subject to a
sales tax. (See "Sales and Use Tax" in this section.)
{G.S. 105-121.1} Mutual Burial Associations
The franchise tax on mutual burial associations is based on membership and ranges from $15 for
associations having less than 3000 members to $50 for associations having 30,001 or more.
{G.S.105-120.2} Holding Companies
The tax rate is $1.50 per $1,000 of the value of the capital stock, surplus, and undivided profits
apportioned to North Carolina. There is a maximum tax liability of $75,000 for corporations
subject to the franchise tax, and a minimum tax of $35.00. If the tax liability exceeds $75,000 the
franchise tax is calculated on the greater amount of:
1. Fifty-five percent (55%) of the appraised value of real estate and tangible personal
property in North Carolina
-or-
2. Net book value of real and tangible personal property in North Carolina.
DISTRIBUTION
{G.S. 105-116.1(a)(2)} The state distributes to municipalities approximately 3.09% of the 3.22%
gross receipts tax levied and collected on power and light companies from taxable sales within
municipal districts. Distributions are made seventy five days after the end of a calendar quarter
and reduced by a limited hold harmless adjustment and an amount for administering the
distribution. The remaining gross receipts revenue, plus revenue from all other sources under
the franchise tax schedule remain with the General Fund, and are used for general purposes.
TAX CALENDAR
{G.S. 105-122(a) & G.S. 105-116(b)} Electric power companies remit the franchise tax in the
same manner as the sales and use tax {G.S. 105-164.16}. If a company’s tax liability is less that
$100.00 monthly the franchise tax is remitted quarterly. When a company’s tax liability exceeds
$100.00 but is less than $10,000 a month, the tax is remitted monthly. In the case where the tax
liability exceeds $10,000 in a month, the company is to remit semi-monthly through electronic
transfer. All other utility companies with an average utility franchise tax of $20,000 or more per
month are required to remit by electronic transfer. Mutual Burial Associations pay the tax on or
25
before April 1 of each year. General business corporations, unless otherwise stated, file on the
15th day of the third month following the close of the income year.
COMPARISON WITH OTHER STATES
It is difficult to make a national comparison of corporate franchise taxes. The classification of a
“franchise tax” can lead to misinterpretation if one relies on name alone. Some states use
corporate income as the base for the franchise tax. Other states may impose a franchise tax on
some measure of capital stock. In some states, one-time or recurring registration fees are
classified as a franchise tax. In the states where the franchise tax is measured on a definition of
capital stock, the base almost always includes a combination of shares of outstanding stock,
surplus, undivided profits, and indebtedness, for which the intent is to act as a measure of the
privileges granted through the franchise tax. The apportionment practices among states vary
widely in the treatment of capital stock for both domestic and foreign corporations. Generally,
the tax rate many states impose ranges from $1 to $3 per $1,000 of capital stock. However the
rate structure varies widely across states with differential rates and percentages that apply to
different types of domestic and foreign corporations.
Sources:
• Commerce Clearing House, Inc. “State Tax Handbook”. Chicago, Illinois, 2010.
• Matthew N. Murray, Franchise/Privilege Tax, State. University of Tennessee, 1996.
26
FREIGHT CAR TAX
Companies that engage in the operation and lease of freight cars pay a gross earnings tax. This
tax is in place of a property tax.
ADMINISTERED BY
Department of Revenue
Table 9
General Fund Freight Car Tax Collections
Annual Percent of
General Fund Percent General Fund Tax
Fiscal Year Collections Change Collections
2001-02 518,887 4.3 <.01
2002-03 379,551 -26.9 <.01
2003-04 527,447 39.0 <.01
2004-05 351,890 -33.3 <.01
2005-06 269,932 -23.3 <.01
2006-07 324,535 20.2 <.01
2007-08 278,555 -14.2 <.01
2008-09 183,472 -34.1 <.01
2009-10 345,419 88.3 <.01
BASE AND RATE
{G.S. 105-228.1} A levy of 3% is placed on the gross earnings of freight line companies. The
gross earnings tax applies to all sources of earnings derived from operating or leasing freight cars
for transporting freight over railroad lines in the state. This tax is in lieu of the property tax.
DISTRIBUTION
Revenue is deposited in the General Fund for general purposes.
TAX CALENDAR
{G.S. 105-228.2} Taxes are due by April 30 for gross earnings of the previous calendar year.
COMPARISON WITH OTHER STATES
Fifteen states levy specific and separate taxes on freight car lines. The levies are typically based
on gross receipts that range from 1% to 6%. North Carolina's rate is 3%. However, some states
levy taxes based on net earnings or on a per mile basis.
Source: Commerce Clearing House, Inc. “State Tax Handbook”, Chicago, Illinois, 2010.
27
GIFT TAX
North Carolina levies a gift tax on the shares in property given from one person to another when
the gift exceeds the annual exclusion amount. The tax is based on the relationship the recipient
has to the donor.
ADMINISTERED BY
Department of Revenue
Table 10
General Fund Gift Tax Collections
Annual Percent of
General Fund Percent General Fund Tax
Fiscal Year Collections Change Collections
2001-02 13,390,362 -33.9 0.1
2002-03 19,304,091 44.2 0.2
2003-04 16,630,438 -14.0 0.1
2004-05 18,896,837 14.0 0.1
2005-06 16,237,070 -14.1 0.1
2006-07 15,641,779 -4.0 0.1
2007-08 17,354,083 11.0 .01
2008-09 12,291,039 -29.2 .07
2009-10 12,028,801 -2.1 .07
BASE AND RATE
{G.S. 105-188}
The gift tax is repealed for gifts made on or after January 1, 2009.
The gift tax is levied on the transfer of real or personal property located in the state. The tax rate
is determined by the relationship between the donor and the donee and the amount of the gift.
The state gift tax is levied on the amount of the gift that exceeds the annual exclusion. The
annual exclusion is equal to the federal inflation-adjusted exclusion under section 2503(b) of the
Internal Revenue Code. Tax rates are separated into four donee classifications and only the
amount of the gift that exceeds the exclusion is subject to tax. The tax on gifts made to
nonresidents applies only if the property is within the jurisdiction of the state.
Donor classifications for gift tax purposes:
• Spouse
• Class A, which includes lineal issues or ancestors, stepchildren, or adopted children.
• Class B, which includes brothers, sisters, issues of either, or blood aunts, or uncles.
• Class C, which includes other relatives or unrelated persons.
The annual exclusion amount is $12,000 for gifts made on or after January 1, 2006. A donor with
permission of the other spouse may use some or all of the spouse's $12,000 annual exclusion. In
28
addition to the annual exclusion, there is a $100,000 per donor lifetime exemption to be deducted
from gifts made to a Class A donor. Gifts to state or political subdivisions or nonprofit
charitable, religious, or educational corporations within the state are exempt.
Table 11
Gift Tax Rate and Bracket Schedule
Rate for % Rate for Rate for
Tax Brackets Class A Donee Class B Donee Class C Donee
$ 0 - 5,000 -NA- 4 -NA-
5,001 - 10,000 1 5 8
10,001 - 25,000 2 6 9
25,001 - 50,000 3 7 10
50,001 - 100,000 4 8 11
100,001 - 200,000 5 10 12
200,001 - 250,000 6 10 12
250,001 - 500,000 6 11 13
500,001 - 1,000,000 7 12 14
1,000,001 - 1,500,000 8 13 15
1,500,001 - 2,000,000 9 14 16
2,000,001 - 2,500,000 10 15 16
2,500,001 - 3,000,000 11 15 17
Above 3,000,000 12 16 17
DISTRIBUTION
Revenue is deposited in the General Fund for general purposes.
TAX CALENDAR
{G.S. 105-197} Taxes are due by April 15 of the calendar year on the amount of a gift that
exceeds the annual exclusion.
COMPARISON WITH OTHER STATES
Four states including North Carolina levy a gift tax. The additional three are Connecticut,
Louisiana, and Tennessee. The estate and gift tax does not apply in Connecticut to estates of
those dying on or after January 1, 2005. Each state’s tax is based on graduated schedules that
vary widely in terms of exemptions, rates, and recipient categories.
Source: Commerce Clearing House, Inc. “State Tax Handbook”, Chicago, Illinois, 2010.
29
INDIVIDUAL INCOME TAX
The individual income tax is imposed on the taxable income of residents, part-year residents and
nonresidents, and children and dependents who receive income from a North Carolina source
during the tax year.
ADMINISTERED BY
Department of Revenue
Table 12
General Fund Individual Income Tax Collections
Annual Percent of
General Fund Percent General Fund Tax
Fiscal Year Collections Change Collections
2001-02 7,134,629,832 -3.5 57.0
2002-03 7,088,526,873 -0.7 58.8
2003-04 7,509,898,086 6.0 54.3
2004-05 8,409,288,618 12.0 54.3
2005-06 9,400,167,970 12.0 55.2
2006-07 10,507,966,531 12.0 56.0
2007-08 10,902,299,190 4.0 58.0
2008-09 9,470,172,885 -13.1 56.4
2009-10 9,047,605,408 -4.5 51.0
BASE AND RATE
Temporary tax surcharge effective for tax years 2009 and 2010
The individual income tax surcharge applies to individuals who meet certain income
requirements and the surtax applies to the amount owed before any withholding, payments, or
credits.
Exemption
• Taxpayers married filling a joint individual income tax return with taxable incomes
below $100,000.
A 2% surcharge applies to the following:
• Married filing jointly with incomes greater than $100,000 up to $250,000.
• Married filing separately with incomes greater than $50,000 up to $125,000.
• Heads of households with incomes greater than $80,000 up to $200,000.
• Individuals with incomes greater than $60,000 up to $150,000.
A 3% surcharge applies to the following:
• Married filing jointly with incomes greater than $250,000.
• Married filing separately with incomes greater than $125,000.
30
• Heads of households with incomes greater than $200,000.
• Singles with incomes greater than $150,000.
{G.S. 105-134.2} Every individual resident, including part-year residents and nonresidents, and
S-corporations and partnerships that receive income for the tax year from a North Carolina
source, is required to file an individual income tax return.
Resident
Residents of North Carolina are required to file an individual income tax return if their federal
gross income equals or exceeds the listed federal adjusted gross income by filing status in Table
13.
Part-year Resident and Nonresident
A part-year resident who received income while a nonresident of North Carolina and whose
gross income equals or exceeds the listed federal adjusted gross income (Table 13) is required to
file a return, if income was derived from any of the following activities:
• The ownership of any interest in real or tangible personal property in the state.
• From a business, trade, profession or occupation carried on in the state.
• Gambling activities.
Table 13
North Carolina Filing Status
Based on Federal Adjusted Gross Income
Federal
Filing Status Adjusted Gross
Income
Single $5,500
Single age 65 > $6,200
Married, filing jointly $11,000
Married, filing jointly one age 65 > $11,600
Married, filing jointly both age 65 > $12,200
Married filing separate returns $2,500
Head of Household $6,900
Head of Household age 65 > $7,650
Widow w/ dependent $8,500
Widow age 65 > $9,100
Children and other Dependents
There is a separate filing status for single and married dependents either age 65 or older or blind.
These individuals are subject to the individual income tax if the amount of earned, unearned,
and/or gross income exceeds specific minimum amounts. In addition, these taxpayers must
follow specific instructions when making adjustments to federal taxable income in order to
determine state taxable income. For additional information on the tax treatment of this class of
taxpayer, please see the Department of Revenue’s Instructions for Filing Form D-400.
(http://www.dor.state.nc.us/downloads/D401.pdf)
31
{G.S. 105-134.6} In calculating state taxable income, certain adjustments must be made to the
federal taxable income in order to derive state taxable income.
Each personal exemption for married filing jointly (two exemptions), head of household, single,
and married filing separately taxpayers is $2,500 for a taxpayer(s) whose federal adjusted gross
income (AGI) is less than the amounts shown below, and $2,000 if more than these amounts.
Federal
Filing Status Adjusted Gross Income
Married, filing jointly $100,000
Head of Household 80,000
Single 60,000
Married, filing separately 50,000
Effective for taxable years beginning on or after January 1, 2004, the filing status and standard
deduction are as follows:
Filing Status Standard Deduction
Married, filing jointly $6,000
Head of Household $4,400
Single $3,000
Married, filing separately $3,000
Table 14
Rate and Tax Bracket Structure
{G.S. 105-134.2}
Married Married Head of
Rate Filing Joint Filing Separate Household Single
6.0% $ 0 - 21,250 $ 0 - 10,625 $ 0 - 17,000 $ 0 - 12,750
7.0% 21,251 - 100,000 10,626 - 50,000 17,001 - 80,000 12,751 - 60,000
7.75% 100,001 - Above 50,001 - Above 80,001 - Above 60,001 - Above
DISTRIBUTION
Revenue is deposited in the General Fund for general purposes, except for $95,331,927 that is
dedicated to local governments as a reimbursement for the repeal of the intangible personal
property tax.
TAX CALENDAR
Returns and tax payments are due by April 15 for income earned during the previous calendar
year.
{G.S. 105-163.2 & G.S. 105-163.6} Employers who withhold an average of less than $250 per
month are required to file and remit tax payments quarterly. Payments are due on the last day of
the first month following the end of the calendar quarter for withholdings of the previous quarter.
Every employer required to deduct and withhold an average of between $250 and $2,000 in
32
income taxes per month, and all employers engaged in any business which is seasonal or
temporary in nature, shall make returns and payments of such withholdings by the fifteenth day
of the month following the month in which such amounts were withheld. Amounts withheld in
December of the tax year are due on January 31. Employers who withhold an average of at least
$2,000 per month are required to remit payments (semiweekly) in accordance with the federal
withholding payment schedule.
{G.S. 105-163.15(f)} Estimated income tax payments are required, if the taxpayer expects the net
estimated tax less allowable credits to be more than $1,000. Payments are due in four
installments for the estimated current year's income by April 15, June 15, September 15, and
January 15 (for the last quarter of the preceding year).
COMPARISON WITH OTHER STATES
As of January 1, 2010, forty three states levy individual income taxes, with two taxing only
dividend and interest income and seven states do not tax individual income. Most states follow
the Federal definition of gross or taxable income. However, tax rates, deductions, and
exemptions vary widely by state.
For tax year 2010, North Carolina has the fifteenth highest marginal tax rate in the nation at
7.75%, North Carolina has the second marginal tax rate among the six southeastern states, and
the forth highest among the eleven most populous states.
For fiscal year 2007-08, North Carolina relied more heavily on the individual income tax than
most other states, obtaining 22% of its state and local taxes from the individual income tax as
compared to 16% for the nation.
On a national basis, 2.5% of state personal income was devoted to state individual income tax
payments, while North Carolina citizens allocated 3.3% of their income to individual income tax
payments.
In terms of per capita income, the average taxpayer in the nation paid $1,003.00 in individual
income tax payments, while North Carolina taxpayers paid $1,192..00.
(1) Georgia, Kentucky, North Carolina, South Carolina, Tennessee, Virginia.
(2) California, Florida, Georgia, Illinois, Michigan, New Jersey, New York, North Carolina,
Ohio, Pennsylvania, Texas.
Source: Federation of Tax Administrators, “State Excise Tax Rate on Cigarette, January 2010”,
Washington, DC. March 2010.
Source: United States Census Bureau. State and Local Government Finance by Level of
Government and by State; 2007-08.
33
INSURANCE TAX
The gross premiums from all insurance contracts covering persons, property and risk are subject
to the insurance tax. Insurance companies that pay a gross premiums tax are not taxed under the
franchise tax or the corporate income tax.
ADMINISTERED BY
Department of Revenue and Department of Insurance
Table 15
General Fund Gross Receipts on Insurance Companies
Annual Percent of
General Fund Percent General Fund Tax
Fiscal Year Collections Change Collections
2001-02 340,785,358 11.4 2.7
2002-03 408,873,355 20.0 2.4
2003-04 423,405,050 3.6 3.1
2004-05 431,664,202 2.0 3.0
2005-06 431,729,295 .02 3.0
2006-07 475,545,413 10.0 3.0
2007-08 492,698,607 4.0 3.0
2008-09 466,601,945 -5.3 3.0
2009-10 486,848,660 4.3 3.0
BASE AND RATE
{G.S. 105-228.5} The insurance tax is measured on the gross premiums from business done
during the previous year on contracts covering persons, property, and risks resident or located in
the state. There are two base gross premium tax rates that are applied to insurance companies:
• 2.5% tax on the gross premiums of worker's compensation policies
• 1.9% tax on the gross premiums of all other insurance policies including health
maintenance corporations, hospitals, and medical and dental service corporations.
Note: The 1.0% gross premiums tax on HMO’s was repealed effective January 1, 2007.
ADDITIONAL TAXES
{G.S. 105-228.5} In addition to the 2.5% rate, fire and lightning contracts are taxed an additional
1.33% on the gross premiums. Fire and lightning contracts, for coverage within fire districts, are
taxed an additional .05%. A portion of the proceeds from each of these taxes goes to help fund
fire safety organizations.
{G.S. 58-6-25} Insurance Regulatory Charge
The General Assembly sets the insurance regulatory by legislation. For the 2009 calendar year,
the rate is 5.5% of an insurance company’s premium tax liability for the tax year. The rate for
34
calendar year 2010 is increased to 6%. When computing this charge, an insurance company does
not include any of the additional taxes levied under G.S.105-228.
{G.S. 105-228.5A} Insurance Guaranty Association
The North Carolina Guaranty Association covers life insurance and casualty insurance
companies. Assessments are levied to cover the cost of insolvency and liquidations. A tax credit
against premium tax payments equal to the amount of the assessment is allowed.
An insurer who pays the gross premiums tax is allowed a credit against the tax equal to 20% of
the amount of the assessment in each of the five taxable years following the year in which the
assessment was made.
DISTRIBUTION
{G.S. 105-228.5(d), G.S. 58-87-5, and G.S. 58-6-25} The proceeds from the insurance
regulatory charge are credited to the Insurance Regulatory Fund. Moneys from the Fund are used
to defray the expenses associated with the operations of the Department of Insurance.
Twenty five percent of the 1.33% gross premiums on fire and lightening contracts are deposited
with the Volunteer Fire Department Fund. These funds are used to make grants to purchase
equipment and for capital improvements by volunteer fire departments. Three percent of the tax
proceeds from the .05% gross premiums tax on fire and lightning contracts are credited to the
State Fireman’s Association for general purposes. The remainder of the tax proceeds is deposited
in the General Fund. Only General Fund revenue is shown above.
TAX CALENDAR
{G.S. 105-228.5 (e) & (f)} Gross premium taxes are due by March 15 for the previous calendar
year's activities. Insurance companies with a premium tax liability of $10,000 or more are
allowed to remit the tax in three equal installments. The installment payments must equal at
least 33 1/3% of the premium tax liability for the previous year. Payment is due on or before the
fifteenth of April, June, and October. Regulatory fees are due at the time the gross premium tax
is due.
Effective for the tax year 2007, health maintenance organizations are to remit two estimated tax
payments, with each payment being equal to 50% of their estimated premium tax liability for the
2007 tax year. The estimated payments are due by April 15 and June 15, 2007.
COMPARISON WITH OTHER STATES
Every state levies an insurance premium tax, which is paid in lieu of other taxes. The most
typical premium tax rate is approximately 2%. It is difficult to compare rates between states
because premium taxes vary depending on the type of policy and other special provisions apply.
However, it appears that North Carolina's premium taxes are typical in comparison to other
states.
Source: Commerce Clearing House, Inc. “State Tax Handbook”, Chicago, Illinois, 2010.
35
MANUFACTURING TAX
There is a special type of privilege tax classification applied to certain machinery and equipment
used in manufacturing and recycling. The special classification also applies to replacement parts
and accessories.
ADMINISTERED BY
Department of Revenue
Table 16
General Fund Manufacturing Tax Collections
Annual Percent of
General Fund Percent General Fund Tax
Fiscal Year Collections Change Collections
2005-06 11,951,991 N/A .07
2006-07 36,558,7801 206 .20
2007-08 37,748,630 3.3 .20
2008-09 32,865,620 -13.0 .20
2009-10 31,897,136 -3.0 .20
Note: FY 2005-06 is a partial year collection.
HISTORIC NOTE
In the past, North Carolina levied a 1% sales and use tax with an $80.00 cap that was applied to
certain manufacturing and agriculture equipment. The tax was known as the mill machinery tax.
Prior to Fiscal Year 2005-06 the tax collections from the 1% manufacturing class of property
were included under the sales and use tax. Due to the Streamlined Tax Agreement, in which
North Carolina participated, a 1% preferential sales tax rate was not allowed to be considered in
the sales and use tax classification. In 2005, the General Assembly classified manufacturing
equipment subject to a manufacturing privilege tax.
BASE AND RATE
{G.S. 105-187.51} Certain equipment and machinery, including parts and accessories used in the
production process, are taxed at 1% with an $80.00 cap. The 1% classification also applies to
equipment purchased and used by recycling and research and development companies. Fuel
used in the production process is taxed at 1% without a cap.
DISTRIBUTION
The net proceeds from this tax are deposited in the General Fund for general purposes.
TAX CALENDAR
{G.S. 105-164.16} The manufacturing tax is collected and remitted in the same manner as the
sales and use tax.
COMPARISON WITH OTHER STATES
A comparison with other state has not been prepared.
36
PIPED NATURAL GAS TAX
Piped natural gas received for consumption within the state is subject to an excise tax. Natural
gas sales subject to the excise tax are not subject to the sales and use tax or the gross receipts tax.
ADMINISTERED BY
Department of Revenue
Table 17
General Fund Tax Collections on Piped Natural Gas
Annual Percent of
General Fund Percent General Fund Tax
Fiscal Year Collections Change Collections
2001-02 40,949,924 10.0 .33
2002-03 36,853,402 -10.0 .30
2003-04 38,994,881 6.0 .30
2004-05 35,081,603 -10.0 .23
2005-06 33,654,268 -4.1 .20
2006-07 36,057,204 7.1 .20
2007-08 36,476,388 1.2 .20
2008-09 34,240,028 -6.1 .20
2009-10 33,794,094 -1.3 .20
BASE AND RATE
{G.S. 105-187.41} Prior to 1999, piped natural gas sales were subject to 3% sales and use tax
and a 3.22% gross receipts tax. In 1999, the sales and gross receipts taxes were repealed in favor
of an excise tax. The tax is based on the monthly volume of natural gas received by the final
user. (The excise tax became effective July 1, 1999)
A local distribution company making deliveries to a sales or transportation customer is
considered the final user for tax purposes and is responsible for paying the tax. If the piped
natural gas is received by direct access from an interstate gas pipeline, the person, firm, or
corporation receiving the gas is responsible for paying the tax.
Therms Rate
First 200 $0.050
201 to 15,000 0.035
15,001 to 60,000 0.024
60,001 to 500,000 0.015
Over 500,000 0.003
37
DISTRIBUTION
{G.S. 105-187.44} Taxpayers are required to file quarterly returns with the Department of
Revenue. The quarterly returns report the amount of piped natural gas delivered to sales and
transportation customers in each city of the state. Within 75 days of the end of each quarter, the
Department of Revenue distributes to municipalities one-half of the amount of tax attributable to
the activity within their jurisdiction. The remaining revenue is deposited in the General Fund for
general purposes.
TAX CALENDAR
{G.S. 105-187.43} Payments are due semimonthly in accordance with the schedule set out in
section G.S. 105-164.16 for semimonthly payments of sales and use taxes.
TAX COMPARISON
A tax comparison was not undertaken.
38
PRIVILEGE LICENSE TAX
A license tax is imposed on certain business for the privilege of engaging in a specific business
activity during the fiscal year.
ADMINISTERED BY
Department of Revenue
Table 18
General Fund Privilege License Tax Collections
Annual Percent of
General Fund Percent General Fund Tax
Fiscal Year Collections Change Collections
2001-02 26,579,102 -41.0 .02
2002-03 44,721,244 68.3 .04
2003-04 41,615,694 -7.0 .30
2004-05 44,992,019 8.1 .29
2005-06 45,569,504 1.3 .27
2006-07 46,277,585 1.6 .30
2007-08 56,309,007 22.0 .30
2008-09 37,515,608 -33.4 .20
2009-10 39,196,662 4.5 .22
BASE AND RATE
{G.S. 105-33} Various business license taxes are levied on persons, firms, or corporations
engaging in certain businesses or professions. The tax is paid annually on or before the first of
July.
{G.S. 105-37.1} Dances, Athletic Events, Shows, Exhibitions and Other Entertainment
A 3% gross receipts tax is levied on the receipts of certain athletic, entertainment, and exhibition
events where the admission fee exceeds 50 cents. Counties and cities are allowed to levy a
privilege license tax on some business activities but the tax cannot exceed $25.00.
{G.S. 105-38.1} Motion Picture Shows
A 1% gross receipts tax is levied on the operation of motion picture shows. If a person engages
in motion picture entertainment and a business under G.S. 105-37.1, the privilege license tax
under G.S. 105-37.1 applies to the entire gross receipts from both activities.
{G.S. 105-41} Attorneys and Other Professionals
Individuals engaged in various professions including physicians, attorneys, engineers, public
accountants, and so forth pay a $50 annual license fee. Accounting firms pay an additional
privilege tax of $12.50 for each employee engaged in accounting practices. If an individual
engages in more than one business activity under this section, the individual must secure a
39
privilege license for each activity. Counties and cities are not authorized to levy a tax under this
section.
{G.S. 105-83} Installment Paper Dealers
Privilege license taxes are also levied on installment paper dealers at a rate of .227% of the face
value of all installment paper, notes, bonds, contracts or evidence of debt for which a lien against
personal property, located in the state, is made to secure payment.
{G.S. 105-88} Loan Agencies
Any business, firm, or organization engaged in the business of making loans and lending money,
check cashing, and in the pawnbroker business must pay a privilege license tax of $250.00 for
each location. This section does not include banks, industrial banks, trust companies, savings
and loan associations, cooperative credit unions, and real estate companies.
{G.S. 105-102.3} Banks
Every bank or banking association, including national banking associations that operate in the
state, must pay a privilege license tax equal to $30.00 per $1,000,000 in total assets.
{G.S. 105-102.6} Publishers of Newsprint Publications
The privilege license tax for newspaper publishers is based on a minimum recycled content. The
tax is levied on each publisher whose recycled content is less that 40%. The rate is $15.00 for
each ton by which a publisher falls short of the minimum.
DISTRIBUTION
Net Proceeds of the privilege license tax are deposited in the General Fund for general purposes.
TAX CALENDAR
Taxes for annual licenses are due annually by July 1 for the upcoming fiscal year. Gross receipts
taxes on entertainment and motion pictures are due by the 10th day after the end of each month.
COMPARISON WITH OTHER STATES
All states have occupation or business license taxes or fees. The occupations and privilege
license tax rates vary significantly within and between states.
Source: Commerce Clearing House, Inc. “State Tax Handbook”, Chicago, Illinois, 2010.
40
SALES AND USE TAX
The sales and use tax is levied on the gross receipt of taxable transactions such as retail sales, the
lease or rental of tangible personal property and some services. The sales and use tax rate is a
combined rate made up of the state rate and the sum of the local option sales and use tax rates.
ADMINISTERED BY
Department of Revenue
Table 19
General Fund Sales and Use Tax Collections
Annual Percent of
General Fund Percent General Fund Tax
Fiscal Year Collections Change Collections
2001-02 3,705,769,832 8.0 30.0
2002-03 3,922,821,877 6.0 27.3
2003-04 4,222,201,842 7.6 30.5
2004-05 4,477,159,178 6.0 29.0
2005-06 4,893,911,220 9.3 29.0
2006-07 4,995,570,841 2.1 27.0
2007-08 4,981,673,149 -.3 27.0
2008-09 4,677,947,376 -6.10 28.0
2009-10 5,565,043,256 19.0 31.4
BASE AND RATE
Temporary sales and use tax increase
Effective September 1, 2009, the North Carolina General Assembly enacted a temporary
additional 1% state sale and use tax rate to the general sales and use tax rate. The temporary rate
is set to expire July 1, 2011. For this period, the combined state and local rate will increase in
most counties from 6.75% to 7.75%. (See section on local government sales and use tax for the
affect of the temporary sales and use tax increase on the local government sales and use tax rate.)
{G.S. 105-164.4} The general state sales tax is imposed on the retail sale, lease, or rental of
tangible personal property not specifically exempt or subject to taxation at a reduced rate. Until
October 1, 2008, all items that are subject to the state sales tax rate of 4.25% are also subject to
the 2.5% Local Government Sales and Use Tax. After October 1st, the state rate will increase to
4.5% and the local rate will be reduced to 2.25%. Effective October 1, 2009, the state and local
rates will change again by one-quarter of a percent. At that time the state rate will be 4.75% and
the local rate will be 2%. When added to the temporary additional 1% rate the state rate will be
5.75%. The “combined rate” is 7.75% in eight-two counties of the state. (See sales tax section
under Local Government Revenues for changes in some local tax rates.) This rate swap is due to
actions by the 2007 session of the General Assembly authorizing the state to take over the local
41
government portion of Medicaid expenses. Local governments are allowed one of two additional
taxing options to make-up the revenue loss. Note: Only the state rate is recorded in this section.
The Local Government Sales and Use Tax is made up of three separate rates defined in Article
39, Article 40, Article 42, Article 44, and Article 46 of Chapter 105 of the North Carolina
General Statutes. Mecklenburg County collects an additional .5 cent on the local option sales and
use tax. (Article 43 of Chapter 105) The revenue from this tax is used for public transportation.
For additional information, see the Local Government section of this publication.
The gross receipts from the lease or rental of tangible personal property, services such as the
rental of certain lodging accommodations, cleaning services provided by dry cleaners and similar
types of businesses are subject to the state rate.
REDUCED BASES AND RATES
{G.S. 105-187.5(b) & G.S. 105-187.9(a)} The gross receipts from the long-term rental or leases
of motor vehicles are subject to the 3% highway use tax, and collections are credited to the
Highway Trust Fund. Short-term leases of motor vehicles (less than 365 continuous days) are
subject to the 8% rate and credited to the General Fund. For additional information on the
Highway Use Tax, see the Highway Trust Fund section of this publication.
{G.S. 105-164.4(a)(1a)} Manufactured housing sold at retail is taxed at a 2% state rate with a
maximum tax or cap of $300.00.
{G.S. 105-164.4(8)} The tax rate on modular homes is 2.5% of the retail price.
{G.S. 105-164.4(a)(1b)} A 3% rate of the state sales tax is levied on the retail price of new and
used aircraft, and boats, with a maximum levy of $1,500.
{G.S. 105-164.4(a)(1f)} The sale of electricity to commercial laundries is taxed at 2.83%.
{G.S. 105-164.4(a)(1j)} Electricity sold to manufacturing industries and manufacturing plants
for use in connection with the operations of the industry or plant is taxed at 1.8%. The rate is
reduced to 1.4% effective July 1, 2008. The tax rate on this class of taxpayer is further reduced to
.8% effective July 1, 2009 and repealed effective July 1, 2010.
{G.S. 105-164.4C} Telecommunication services, cable services, and satellite services (including
satellite radio services and voice mail) are subject to the general state rate.
{G.S. 105-164.4(a)(4c)} The combined general sales and use tax rate applies to the gross receipts
from telecommunication services.
{G.S. 105-164.44F (a)} Municipalities receive 19.42% of the gross receipts from
telecommunication service provided within municipal jurisdictions. Counties and cities share in
an additional 8% of the gross receipts from telecommunication services provided statewide.
42
{G.S. 105-164.4(a)(6)} Cable service providers, direct-to-home satellite providers, and any other
person or business providing video programming is considered a retailer, and the gross receipt
from the sale of such services is subject to the general sales and use tax rate. Cities and counties
share in 25% of the net proceeds from video programming services and 37.5% of the net
proceeds from direct-to-home satellite services {G.S. 105-164.44I}.
{G.S. 105-164.4 (4a)} Gross receipts derived by a utility from the sale of electricity are subject
to the state sales tax of 3%, in addition to the 3.22% rate {G.S. 105-116} of tax imposed under
the franchise tax schedule {G.S. 105-116.1}. Municipalities receive 3.09% of the franchise tax
from the sale of electricity within the municipal boundary.
{G.S. 105-164.13B} Food Exempt from Sale Tax
Food is exempt from the sales tax unless it is sold through a vending machine. Prepared food,
soft drinks, candy, and dietary supplements are subject to the sales tax. These items are still
subject to the local government sales tax.
{G.S. 105-164.13C} Sales and Use Tax Holiday
Enacted in 2002, the sales tax holiday extends for three days beginning on the first Friday in
August and extending through Sunday. The exemption is extended to clothing, school supplies,
sport and recreational equipment, computers, and educational software. There is a $100 cap per
item of clothing and school supplies, a $50 cap per item of sport or recreational equipment, and a
$3,500 cap per computer. Computer supplies with a sales price of $250.00 or less are exempt,
beginning with the 2006 holiday.
{G.S. 105-164.13} Sales and Use Tax Exemptions and Exclusions
The federal government and the North Carolina Department of Transportation are exempt from
state and local sales and use taxes. Many items, such as prescription medicine and certain
medical devices, are exempt from the tax. Due to actions of the North Carolina General
Assembly during the 2005 Legislative Session, many of the items taxed at 1% with an $80.00
cap are now exempt from the State Sales and Use Tax.
{G.S. 105-164.14} Certain Refunds Authorized
Currently, state government agencies receive a refund of local sales and use taxes paid on their
direct purchases for use. Effective July 1, 2004, sales to state agencies are exempt from sales or
use tax if the state agency making the purchase furnishes a tax exemption number to the seller.
Certain governmental entities, as defined by statute, may obtain refunds, as well as hospitals,
educational institutions, churches, orphanages, and charitable and religious institutions not
operating for a profit, and certain homes for the aged, sick, or infirm.
DISTRIBUTION
Revenue is deposited in the General Fund for general purposes, except for a small amount
dedicated to the Wildlife Resource Fund. Sixty percent of the state sales tax on dry cleaning and
laundry services is dedicated to the Dry Cleaning Solvent Cleanup Fund. The sales and use tax,
collected from taxable food items, is distributed to local governments. For additional
information, see the Local Government section of this publication.
43
TAX CALENDAR
{G.S.105-164.16} For merchants with a monthly sales and use tax liability of at least $100, but
less than $10,000, taxes are due monthly by the fifteenth of each month on sales that took place
the previous month. Businesses with monthly sales and use tax liabilities of $10,000 or more are
required to remit twice a month. One semimonthly payment covers the period of the month from
the first through the fifteenth. The second payment covers the period of the month from the
sixteenth through the end of the month. Persons who consistently owe sales or use taxes of less
than $100 per month may file reports quarterly by the last day of the month following the end of
the quarter.
COMPARISON WITH OTHER STATES
As of January 2010, forty-five states levy sales and use taxes. State sales tax rates range from
2.9% to 8.25%, with a median rate of 5.75%. (Comparisons are made without any effective
temporary rates.) The state sale tax rate for North Carolina is 5.75%. There are twenty four
states with a higher state sales tax rate and twenty states with a lower rate than North Carolina.
North Carolina ranks forth among the southeastern states (1), and eighth among the eleven most
populated states (2).
(1) Georgia, Kentucky, North Carolina, South Carolina, Tennessee, Virginia
(2) California, Florida, Georgia, Illinois, Michigan, New Jersey, New York, North
Carolina, Ohio, Pennsylvania, Texas
Source: Federation of Tax Administrators, “State Excise Tax Rate on Cigarette, January 2010”,
Washington, DC. February 2010.
PART III
HIGHWAY FUND TAXES
46
47
HIGHWAY FUND
Highway Fund revenue is primarily used to maintain the state’s 79,262 miles of public roads,
and to fund the administrative operations of the Department of Transportation and its many
Divisions, including the Division of Motor Vehicles. In addition, the Fund supports the
Department’s commitment to a multi-modal transportation network encompassing public
transportation, aviation, rail, ferries, and bicycle and pedestrian programs. Highway Fund
revenue is also used to provide supplemental funding for secondary road construction and
provide aid to municipalities for Powell Bill road maintenance.
The Highway Fund receives support from three primary revenue sources. The first is the excise
tax on motor fuels, of which the Highway Fund receives 75%. The second source of revenue is
licenses and fees collected by the Division of Motor Vehicles, and the third source is from
interest earned on cash balances held by the state treasurer.
Each summary outlines the subject being taxed, the tax rate or rates, total collections, any
distributions made from the collections, and any exemptions. A comparison with similar taxes
from other states is made for most schedules and is updated as often as national data is available.
48
Motor Fuels $ 1,145,528,928
Truck Plates 128,136,502
Staggered Registration 189,076,290
Driver License 126,530,919
IRP 58,684,032
Other Fees & Interest 83,687,212
Total $ 1,731,643,883
Chart 4
North Carolina Highway Fund Tax Collections
2009-10
Staggered
Registration
11%
Motor Fuels
66%
Truck Plates
7%
Driver License
7%
IRP
3%
Other Fees &
Interest
5%
49
DEALER AND MANUFACTURER LICENSE FEES
Individuals, firms, and corporations that engage in the sale of new, used, and newly
manufactured vehicles must obtain a license from the Division of Motor Vehicles.
ADMINISTERED BY
Department of Transportation Division of Motor Vehicles
Table 20
Highway Fund Dealer and Manufacturer License Fee Collections
Annual Percent of
Highway Fund Percent Highway Fund Tax
Fiscal Year Collections Change Collections
2000-01 1,145,552 -20.9 0.1
2001-02 1,078,075 -5.9 .01
2002-03 1,104,651 2.5 .01
2003-04 1,071,555 -3.0 .01
2004-05 1,051,171 -2.0 .01
2005-06 1,272,243 21.0 0.1
2006-07 760,763 -40.0 .004
2007-08 1,032,180 36.0 0.1
2008-09 927,018 -10.0 0.1
2009-10 1,072,841 16.0 0.1
BASE AND RATE
{G.S. 20-289} Annual license fees are levied on motor vehicle manufacturers, dealers,
distributors, distributor branches, wholesalers, and salesmen at the following rates:
1. Motor vehicle dealers, distributors, distributor branches, and wholesalers, $70.00 for each
principal place of business
2. Manufacturers, $150.00, and for each factory branch, $100.00
3. Motor vehicle sales representatives, $15.00
4. Factory and distributor representatives, $15.00
{G.S. 20-291} If a representative changes employers, the fee for the issuance of a license stating
the name of a new employer is $10.00.
{G.S. 20-287} A manufacturer, factory branch, distributor, and distributor branch may operate
without obtaining a motor vehicle dealer’s license.
DISTRIBUTION
Revenue is deposited in the Highway Fund for highway purposes.
50
TAX CALENDAR
{G.S 20-288} All licenses are granted for a period of one year unless suspended or revoked.
COMPARISON WITH OTHER STATES
A comparison with other states was not taken.
51
DRIVER’S LICENSE FEES
In order to operate a motor vehicle on public roads, a person must be at least 16 years of age and
be licensed by the Division of Motor Vehicles. Persons under the age of 16 can operate a motor
vehicle on public roads under limited circumstances.
ADMINISTERED BY
Department of Transportation Division of Motor Vehicles
Table 21
Highway Fund Driver’s License Fee Collections
Annual Percent of
Highway Fund Percent Highway Fund
Fiscal Year Collections Change Tax Collections
2000-01 66,172,057 12.3 5.3
2001-02 68,941,464 4.2 5.4
2002-03 70,463,916 2.2 5.7
2003-04 74,839,528 6.2 5.5
2004-05 79,370,033 6.1 5.7
2005-06 110,492,674 39.2 6.6
2006-07 125,922,739 14.0 7.0
2007-08 133,330,676 6.0 7.5
2008-09 129,657,974 -3.0 7.6
2009-10 126,530,919 -2.4 7.4
Note: Increase in fees effective October 2005; partial year collections FY 2005-06
BASE AND RATES
{G.S. 20-11} Limited Learners Permit and Provisional Licenses
Individuals under the age of 18 are required to have both instruction and experience before
receiving a basic operator’s license. In addition to successfully completing a prescribed driver
training course under G.S. 20-88.1, a driver is allowed limited driving privileges. Note: Only the
highlights are listed below. For additional driving limitations by level, see G.S. 20-11.
Level I – Limited Learner’s Permit
The individual must be 15 years old and is restricted to driving under supervision. For
the first six months, level I drivers can only drive between the hours of 5:00 a.m. and
9:00 p.m.
Level II – Limited Provisional License
The individual must have held a limited learner’s permit for 12 months and be 16 years
old. The driver may drive without supervision under certain limitations regarding time of
day and the number of occupants in the vehicle.
52
Level III – Full Provisional License (Class C)
The individual must be 16 years old and have held a limited provisional license for at
least six months, have a driving eligibility certificate or a high school diploma, and have
never been convicted of a motor vehicle moving violation.
Minimum Age Requirements for Licensure:
1. {G.S. 20-9} Classes of regular licenses, Class A-18, Class B-18, Class C -16.
2. {G.S. 20-10} Public passenger carrying vehicles, same as classes A & B.
3. {G.S. 20-11} Issuance of limited learners permit is 15 years of age.
4. {G.S. 20-37.13} Commercial drivers must be 21 years old and a resident of the state.
{G.S. 20-7(i) & G.S. 20-37.16 (d)} Classes of Driver’s Licenses A, B, & C
1. Learners permit; issued for 18 months is $15.00
2. The basic operator’s license; class C is issued for a fee of $4.00 per year
3. Chauffeurs licenses; classes A and B are issued for a fee of $4.00 per year
4. Commercial licenses; classes A, B, and C are issued for a fee of $15.00 per year
License Renewal Periods
Under the age of 18 – A license expires on the 21st birthday.
Between the ages of 18 and 65 – A license expires eight years after the date of issuance.
At least 66 years old – A license expires five years after the date of issuance.
In order to operate a motorcycle on the roadways of the state, an operator must have a Class C
driver’s license and a motorcycle endorsement. The fee for a motorcycle endorsement is $1.75
cents per year.
Commercial Driver Licenses (CDL)
{G.S. 20-37.13} The fee for a commercial driver’s license permit is $15.00 per year.
{G.S. 20-37.15(a1)} Application fee for a commercial driver’s license is $30.00 per year.
{G.S. 20-37.16(d)} Commercial driver’s license is $15.00 per year.
{G.S. 20-37.16(d)} The commercial endorsement fee is $3.00 per year.
In addition, the following fees apply:
1. {G.S.20-14} Duplicate license is $15.00.
2. {G.S. 20-26(e)} Limited and complete, exact copy(s) of license is $8.00 per year.
3. {G.S. 20-26(e)} Certified true copy of complete license record is $11.00 per year.
4. {G.S. 20-37.7(d)} Special ID cards for non-drivers aged 16 and over are $15.00 per year.
5. {G.S. 20-7(i1)} Restoration fee to restore a license after revocation is $50 and $75 if
revoked for driving under the influence. A charge of $50 applies for failure to surrender
a revoked driver's license.
6. {G.S. 20-16(e)} Driver improvement clinic is $50.
DISTRIBUTION
All revenue collected from licenses and fees is deposited in the Highway Fund for highway
purposes, except $25 of the $75 license restoration fee. Revenue collected for the restoration of a
license revoked for driving under the influence is split between the Highway Fund and the
53
General Fund. The $50 license restoration fee and $50 of the $75 restoration fee for driving
while impaired are deposited in the Highway Fund. Twenty five dollars ($25) of the seventy five
dollar fee ($75) is deposited in the General Fund for the Center for Alcohol Studies Endowment.
Five cents from the issuance of each driver’s license and duplicate license is credited to the
License to Give Trust Fund, an online organ donor program. Some of the revenue collected
under the Special ID Cards is used to offset DMV operating expenses.
TAX CALENDAR
License fees and other charges are due at the time of purchase of the license or service.
COMPARISON WITH OTHER STATES
North Carolina's driver's license tax is a multifaceted levy consisting of several components.
Comparative information was only obtained on operator's license fees. All 50 states levy
operator's license fees. Operator's licenses are typically for a four-year period, with only a
handful of states (including North Carolina) having a different license period. Converting these
license fees to an annual basis, rates ranged from $1.46 to $16.89. The average fee in the nation
is $6.43. North Carolina's annual fee is $6.69. Thirteen states had a higher levy than North
Carolina. North Carolina has the highest rate of the southeastern states (1). Of the most populated
states, North Carolina ranked third(2).
Table 22
Distribution of Driver’s License Fees
2010
Fees Number of
States
$1.00 - $1.99 1
2.00 - 2.99 8
3.00 - 3.99 2
4.00 - 4.99 1
5.00 and Above 38
(1) Georgia, Kentucky, North Carolina, South Carolina, Tennessee, and Virginia.
(2) California, Georgia, Florida, Illinois, Michigan, Ohio, Pennsylvania, New Jersey,
New York, North Carolina, Texas.
Source: Department of Transportation, Highway Taxes and Fees 2008, U.S. Federal Highway
Administration, Washington, D.C., January 2010.
54
FINANCIAL SECURITY RESTORATION FEES
Owners of a registered motor vehicle, operating on the roads of this state, must maintain
financial responsibility through liability insurance coverage on each vehicle throughout the
period of registration. When liability coverage lapses and the registration is restored, the owner is
charged a civil penalty.
ADMINISTERED BY
Department of Transportation Division of Motor Vehicles
Table 23
Highway Fund Financial Security Restoration Fee Collections
Annual Percent of
Highway Fund Percent Highway Fund Tax
Fiscal Year Collections Change Collections
2000-01 10,263,535 21.5 0.8
2001-02 12,716,831 24.0 1.0
2002-03 14,479,061 14.0 1.2
2003-04 15,068,442 4.1 1.1
2004-05 4,764,996 -68.4 0.3
2005-06 5,540,080 16.3 0.3
2006-07 5,483,096 -1.0 0.3
2007-08 5,542,880 1.1 0.3
2008-09 5,525,979 -0.3 0.3
2009-10 5,497,624 -0.5 0.3
BASE AND RATE
{G.S. 20-309} When notice of a lapse of insurance is received by the Division of Motor
Vehicles, the owner is given 10 days to certify to the Division that the vehicle was covered for
liability purposes on or prior to the effective date of such termination. In the case of lapsed
liability insurance coverage, in order for the owner to restore the registration, the owner must
certify to the Division that the vehicle is covered for liability insurance purposes and pay to the
Division a civil penalty of $50.00.
DISTRIBUTION
Revenue is deposited in the Highway Fund for highway purposes.
TAX CALENDAR
Payment is made at the time of restoration.
55
COMPARISON WITH OTHER STATES
Most states require the owner of a motor vehicle to prove financial responsibility for the
operations of a vehicle on public road ways. While similar, penalties vary widely with regard to
the type and amount of financial responsibility.
Source: Department of Transportation, Highway Taxes and Fees, U.S. Federal Highway
Administration, Washington, D.C., October 2010.
56
GASOLINE INSPECTION TAX
Petroleum products and related substitutes used in heating and power generation are subject to
inspection. The purpose of the inspection tax is to ensure the quality of the products being sold to
the public and to prevent reprehensible practices.
ADMINISTERED BY
Department of Revenue
Department of Agriculture
Table 24
Highway Fund Gasoline Inspection Tax Collections
Annual Percent of
Highway Fund Percent Highway Fund Tax
Fiscal Year Collections Change Collections
2000-01 12,803,620 4.3 1.0
2001-02 12,938,330 1.1 1.0
2002-03 13,450,770 4.0 1.1
2003-04 13,881,390 3.2 1.0
2004-05 15,195,902 9.5 1.1
2005-06 14,577,283 -4.1 1.0
2006-07 14,907,956 2.3 1.0
2007-08 14,200,122 -5.0 0.8
2008-09 13,674,635 -4.0 0.8
2009-10 14,105,867 3.2 0.8
BASE AND RATE
{G.S. 119-18(a)} An inspection tax of one fourth of one cent (1/4 of 1¢) per gallon is levied on
all petroleum products used as fuels. This includes gasoline, diesel, blended fuels, alternative
fuels, kerosene, and fuels exempt from the excise tax on motor fuels. Aviation fuels are also
subject to the inspections tax. (For additional information on motor fuel taxation, see Articles
36C and 36D of Chapter 105 of the North Carolina General Statutes.)
DISTRIBUTION
The revenue from the gasoline inspection tax is used to fund the administration and enforcement
of the tax by the Departments of Revenue and Agriculture under Articles 36C and 36D of
Chapter 105. The balance of the revenue is credited on a monthly basis to the Commercial
Leaking Petroleum Underground Storage Tank Cleanup Fund and the Noncommercial Leaking
Petroleum Underground Storage Tank Cleanup Fund. If the amount of revenue in the
Noncommercial Fund at the end of a month is at least five million dollars ($5,000,000), one-half
of the remainder of the proceeds shall be credited to the Noncommercial Fund and one-half of
the remainder of the proceeds shall be credited to the Commercial Fund.
57
TAX CALENDAR
{G.S. 119-18(a)} The inspection tax on motor fuel is due and payable to the Secretary of
Revenue at the same time as the excise tax on motor fuel is due. (See G.S. 105-449.90) The
inspection tax on alternative fuels is due monthly within 25 days after the end of the month. The
inspection tax on kerosene is payable monthly to the Secretary by the supplier. Monthly reports
on kerosene are due by the 22nd of each month, and apply to sales during the preceding month.
COMPARISON WITH OTHER STATES
As of January 2008, thirty seven states inspect some or all petroleum products. Fifteen states
impose either a fee or a tax on one or all of the products that are inspected. However, in most
taxing states the set of petroleum products taxed is different and the unit of measure, upon which
a tax is applied, can differ between states.
Source: Department of Transportation, Highway Taxes and Fees 2008, U.S. Federal Highway
Administration, Washington, D.C., January 2008.
58
INTERNATIONAL REGISTRATION PLAN
The International Registration Plan is a reciprocity agreement for motor carriers in the U.S.,
District of Columbia, and Canada. The Plan is a federally encouraged program to facilitate
commercial vehicle registrations and operations among the states and Canadian Providences.
ADMINISTERED BY
Department of Transportation Division of Motor Vehicles
Table 25
Highway Fund International Registration Plan Collections
Annual Percent of
Highway Fund Percent Highway Fund Tax
Fiscal Year Collections Change Collections
2000-01 47,494,993 -13.2 3.8
2001-02 49,909,132 5.1 4.0
2002-03 45,039,506 -10.0 4.0
2003-04 47,623,500 5.74 4.0
2004-05 49,789,517 5.0 4.0
2005-06 66,013,231 32.6 4.0
2006-07 68,385,177 3.6 4.0
2007-08 65,105,480 -5.0 4.0
2008-09 62,065,670 -5.0 4.0
2009-10 58,684,032 -5.5 3.4
BASE AND RATE
{G.S. 20-87.1} North Carolina has participated in the International Registration Plan (IRP) since
1977. The IRP is the registration reciprocity compact among states, the District of Columbia,
and Canadian Provinces. Vehicles licensed under the International Registration Plan are owned
and operated by registrants of member jurisdictions. Registered vehicles are known as apportion
vehicles and pay license fees based on fleet distance operated in member jurisdictions.
Registered fleets are granted full intrastate and/or interstate reciprocity and require the issuance
of one plate and one cab card per fleet vehicle. The Plan defines a fleet vehicle as one or more
apportionable vehicles.
The weight and rate schedule under this plan follows:
59
Table 26
Schedule of Weights and Rates
(Per 100 lbs. of Gross Weight)
Weight/Rate
Bracket
Farm Non-
Farm
Up to 4,000 lbs. $.29 $.59
4,001 to 9,000 lbs. .40 .81
9,001 to 13,000 lbs. .50 1.00
13,001 to 17,000 lbs. .68 1.36
Over 17,000 lbs. .77 1.54
Vehicles in the “over 17,000” pounds category pay an additional tax of $3.00. Replacement
plates for all vehicles are $9.
{G.S. 20-385} ADDITIONAL FEES FOR INTERSTATE MOTOR CARRIERS
1. Insurance verification for each for-hire motor carrier operated in the state, $1.00.
2. Application by interstate motor carrier for certificate of exemption, $45.00.
3. Certification by an interstate motor carrier that is not regulated by the U.S. Department
of Transportation, $45.00.
4. Emergency permits for interstate motor carrier, $18.00.
DISTRIBUTION
Revenue is deposited in the Highway Fund for highway purposes.
TAX CALENDAR
License fees are computed according to the percentage of miles driven in each jurisdiction for
the preceding fiscal year beginning on the first of July. Effective October 2005 for the 2006
registration year, the annual renewal period for the purchase of plates is staggered.
COMPARISON WITH OTHER STATES
Ten Canadian provinces and 48 contiguous states participate in the International Registration
Plan (IRP). For the 48 states that are in the IRP (for five axle tractor trailers) the registration fees
are determined according to the weight of the vehicle and the percentage of distance driven in
each jurisdiction (participating state) for the preceding year. Because of the manner in which the
fees are calculated, it is difficult to compare them across states.
Source: Department of Transportation, Highway Taxes and Fees 2008, U.S. Federal Highway
Administration, Washington, D.C., January 2008.
60
MOTOR FUELS EXCISE TAX
The state levies an excise tax on all motor fuels including alternative motor fuels sold,
distributed, and used to power motor vehicles operating on public roads of the state. The
revenue collected from the tax is split between the Highway Fund and the Highway Trust Fund.
The Highway Fund portion is 75% of collections.
ADMINISTERED BY
Department of Revenue
Department of Transportation Division of Motor Vehicles
Table 27
Highway Fund Motor Fuel Excise Tax Collections
Annual Percent of
Highway Fund Percent Highway Fund
Fiscal Year Tax Collections Change Tax Collections
2000-01 867,815,163 11.1 69.7
2001-02 888,128,994 2.3 69.3
2002-03 848,372,049 -4.5 68.3
2003-04 935,531,825 10.3 69.3
2004-05 956,651,016 2.6 68.5
2005-06 1,100,801,379 14.5 66.0
2006-07 1,186,563,036 7.8 66.0
2007-08 1,168,720,744 -1.5 65.0
2008-09 1,114,992,201 -5.0 65.0
2009-10 1,145,528,928 4.0 67.0
BASE AND RATE
{G.S. 105-449.80} The motor fuels excise tax is levied on the wholesale price of motor fuel. The
excise tax has a fixed rate of 17.5 cents per gallon plus a variable component rate that is 7% of
the average wholesale price of motor fuels. The excise tax on motor fuels is computed and set
twice a year in January and July and cannot fall below 3.5 cents per gallon.
State Rate
Base period: January 1, 2010 base rate cannot fall below .299 cents/gal
July 1, 2010 base rate is cannot fall below .299 cents/gal
Effective Rate: January 1, 2010 actual tax rate .325 cents/gal
July 1, 2010 actual tax rate .319 cent/gal
Note: By actions of the 2009 General Assembly, A tax rate floor of .299 cents per gallon will be
in affective until July 1, 2011.
61
Federal Rate
Effective Date: October 1, 1997 tax rate gasoline .184 cents
Effective Date: October 1, 1997 tax rate diesel .244 cents
BASE PERIOD
The first base period is the six months ending on the 30th of September. The second base period
is the six months ending on the 31st of March.
January Base Period = April, May, June, July, August, September
6
July Base Period = October, November, December, January, February, March
6
Computation of the Wholesale Component for the base period:
a. Compute the 6 month average sales price of “finished” gasoline
b. Compute the 6 month average sales price of #2 diesel fuel
c. Compute the weighted average of the results of the first two calculations based on the
proportion of the tax collected on gas and diesel.
Gas Weighted Average = Total Taxable Gallons Gas
Gas Taxable Gallons
Diesel Weighted Average = Total Taxable Gallons Diesel
Diesel/Special Fuel Taxable Gallons
d. Sum the weighted averages and multiply times 7%
e. Round up to the nearest 1/10 of a cent
EXEMPTIONS
{G.S 105-449.88} Fuel sold to the U.S. Government, state government agencies, N.C. counties
or municipal corporations, N.C. community colleges, local boards of education for use in public
or charter school transportation (including fuel for automobiles owned by school boards), and
motor fuel removed from a terminal for export for which the supplier collects the excise tax at
the rate of the destination state is exempt from this tax. Diesel that is kerosene sold to an airport
is exempt from the tax.
QUARTERLY REFUNDS
{G.S. 105-449.106} A refund of the excise tax paid less one cent per gallon is given to the
following: volunteer fire departments, sheltered workshops recognized and approved by the
Department of Human Resources, volunteer rescue squads, taxicabs transporting fare-paying
passengers, private nonprofit organizations operating motor vehicles under contract or at the
express designation of a unit of local government, and off-highway use of special mobile
equipment.
62
ANNUAL REFUNDS
{G.S. 105-449.107} A refund of the average excise tax paid is given for purchases of fuel not
used on the highway. The refund is based on the excise tax paid on fuel used in the preceding
calendar year. There is a refund of 33 1/3% of the average tax paid on fuel used in concrete
mixing vehicles, solid waste compacting vehicles, commercial vehicles that deliver and spread
mulch, soil and similar materials, and certain agricultural and tank delivery vehicles.
DISTRIBUTIONS
{G.S. 105-449.125} Of the tax collected, 1/2 cent per gallon is dedicated as follows:
1. Commercial Leaking Petroleum Underground Storage Tank Cleanup Fund, 19/32
2. Noncommercial Leaking Petroleum Underground Storage Tank Cleanup Fund, 3/32
3. Water and Air Quality Account, 5/16.
Of the remaining revenue, 75% remains in the Highway Fund, and 25% is allocated to the
Highway Trust Fund. All motor fuel tax collections credited to the Highway Trust Fund are used
for highway construction. Only Highway Fund revenue is shown above.
ADDITIONAL DISTRIBUTION
{G.S. 105-449.126} The Wildlife Resources Fund receives 1/6 of 1% of the excise tax on motor
fuels that is allocated to the Highway Fund. The revenues received under this distribution are
annual and are used for boating and water safety activities.
POWELL BILL DISTRIBUTION
{G.S. 136-41.1} In October of each year, one and three fourths cents (1 ¾) of the net tax on each
gallon of motor fuel and alternative fuels sold or distributed in the state is appropriated from the
Highway Fund. This appropriation is made to eligible cities and towns for street maintenance.
The funds appropriated from the Highway Fund are based on collections during the fiscal year
preceding the distribution date. Seventy five percent (75%) is distributed based on population
and twenty five percent (25%) is distributed based on public road mileage.
TAX CALENDAR
{G.S. 105-449.90} The motor fuels excise tax is collected by wholesale distributors of motor
fuels on purchases made from major oil companies at the terminal rack. The excise tax collected
on motor fuels is paid to the Secretary of Revenue either annually, quarterly, or monthly.
Annual returns are due 45 days after the end of the calendar year. Quarterly returns are due by
the last day of the month that follows the end of the calendar quarter. Monthly returns are due
within 22 days after the end of the month. A monthly return of an occasional importer is due by
the third day of each month.
COMPARISON WITH OTHER STATES
All states levy motor fuel taxes on gasoline, diesel fuel, and gasohol. In addition, several states
have different levies on jet and other fuels. Sales taxes are applied on motor fuels in addition to
the excise tax in some states, and separate local motor fuel taxes are applied in selected
jurisdictions in several states.
63
As of January 2010, state excise taxes on gasoline ranged from 4.0 cents per gallon to 37.5 cents
per gallon. The average state gasoline tax was 18.3 cents per gallon. For comparison, North
Carolina's rate was 30.30 cents per gallon, and was the third highest tax in the nation. The
average motor fuels tax in the southeastern states was 18.3 cents per gallon, and the average for
the eleven most populated states was 16.03 cents per gallon. North Carolina had the highest tax
rate among the southeastern states and among the eleven most populated states. North Carolina
is one of seven states that have a variable motor fuel excise tax rate.
Table 28
Gasoline Excise Tax Rates for the U.S., North Carolina
and Surrounding States
January 2010
State Tax Rate
Cents/gal
United States 18.3
Southeast 19.0
Eleven Largest States 16.03
North Carolina 30.30
Surrounding States
Georgia 7.50
Kentucky 22.70
North Carolina 30.30
South Carolina 16.00
Tennessee 20.00
Virginia 17.50
Source: Federation of Tax Administrators, “State Motor Fuel Tax Rates, January 1, 2010”,
Washington, DC. March 2010.
64
OVERWEIGHT/OVERSIZE PERMITS
Vehicles that exceed the state’s maximum size and weight standards to move or operate on
public roads may apply for and be issued an overweight and oversize permit. Generally, such
permitting applies to the movement of construction vehicles and mobile and modular homes.
ADMINISTERED BY
Department of Transportation Division of Motor Vehicles
Table 29
Highway Fund Overweight/Oversize Permit Collections
Annual Percent of
Highway Fund Percent Highway Fund Tax
Fiscal Year Collections Change Collections
2000-01 5,261,816 111.5 0.4
2001-02 6,359,366 21.0 0.5
2002-03 5,024,634 -21.0 0.4
2003-04 3,444,149 -31.5 0.3
2004-05 7,349,815 113.4 0.5
2005-06 6,649,860 -9.5 0.4
2006-07 6,754,596 2.0 0.4
2007-08 6,625,951 -2.0 0.4
2008-09 5,755,377 -13.0 0.3
2009-10 5,268,905 -8.5 0.3
BASE AND RATE
{G.S. 20-119} Upon receipt of application, the state may issue, at its discretion, special permits
granting permission to operate overweight/oversize motor vehicles on North Carolina highways.
The single trip permit fee for oversize vehicles is $12.00 for each dimension over the lawful
dimensions including height, length, width, and weight up to 132,000 pounds. The single trip
permit for overweight vehicles is $3.00 per 1,000 pounds over 132,000 pounds. The annual
permit fee for moving house trailers is $200.00 and for other commodities is $100.00. The
application fee for a permit that requires an engineering study for pavement or structures is
$100.00.
DISTRIBUTION
Revenue is deposited in the Highway Fund for highway purposes.
TAX CALENDAR
Revenue is received at the time the permit is issued.
COMPARISON WITH OTHER STATES
A comparison is hard to make between states. Most states levy penalties for violation of size and
weight limits. However, penalties by axle weight are not uniform across all states.
65
PENALTIES
The state sets standards for the size and loads of vehicles operating on public roads. When the
maximum standards are violated, and no special use permit has been issued, the owner and/or
operator can be charged a penalty.
ADMINISTERED BY
Department of Transportation Division of Motor Vehicles
Table 30
Highway Fund Overweight/Oversize Permit Collections
Annual Percent of
Highway Fund Percent Highway Fund Tax
Fiscal Year Collections Change Collections
2000-01 13,263,785 56.9 1.1
2001-02 15,300,462 15.4 1.2
2002-03 16,003,526 5.0 1.3
2003-04 18,366,061 15.0 1.4
2004-05 34,262,047 86.6 2.4
2005-06 35,522,264 3.7 2.0
2006-07 38,969,065 9.7 2.2
2007-08 41,815,227 7.3 2.3
2008-09 34,780,948 -17.0 2.0
2009-10 28,638,488 -18.0 2.0
BASE AND RATE
{G.S. 20-118} This statute lists the maximum weight by axle group.
{G.S 20-118(e) (3)} For each violation of the license, permit, or axle grouping weight as
established in {G.S. 20-118 (b) (3)}, the owner must pay to the Division of Motor Vehicles, a
penalty, per violation, as listed in the following table.
Table 31
Violation by Weight
Amount of Pounds Penalty Per
Over Maximum Pound
First 2000 lbs. 2 cents
Second 3000 lbs. 4 cents
In excess of 5000 lbs. 10 cents
{G.S. 20-118(e) (1)} For each violation of axle weight as established by G.S. 20-118 (b)(1),
(b)(2), and (B)(4) the owner must pay the Division of Motor Vehicles a penalty, per violation, as
listed in the following table. (See statute for further explanation.)
66
Table 32
Violation by Single or Tandem Axle
Amount of Pounds Penalty Per
Over Maximum Pound
First 1000 lbs. 4 cents
Second 1000 lbs. 6 cents
In excess of 2000 lbs. 10 cents
Note: The violations listed are a representation of the penalties levied by type of fine. For a
complete listing please see the Motor Vehicle Laws of North Carolina.
DISTRIBUTION
Revenue is deposited in the Highway Fund for highway purposes.
TAX CALENDAR
Payments are due at the time the penalty is issued.
COMPARISON WITH OTHER STATES
A comparison is hard to make between states. Most states levy penalties for violation of size and
weight limits. However, penalties by axle weight are not uniform across all states.
67
REGISTRATION FEES
Fees are charged for certificates of title, registration cards (including special identification cards),
and certain registration plates for motor vehicles.
ADMINISTERED BY
Department of Transportation Division of Motor Vehicles
Table 33
Highway Fund Overweight/Oversize Permit Collections
Annual Percent of
Highway Fund Percent Highway Fund Tax
Fiscal Year Collections Change Collections
2000-01 2,594,868 -3.5 0.2
2001-02 2,585,980 -0.3 0.2
2002-03 2,595,095 0.4 0.2
2003-04 2,786,678 7.4 0.2
2004-05 2,743,180 -1.6 0.2
2005-06 3,656,707 33.3 0.2
2006-07 3,956,385 8.2 0.2
2007-08 3,839,311 -3.0 0.2
2008-09 3,516,181 -8.4 0.2
2009-10 3,444,812 -2.0 0.2
BASE AND RATE
Charges are rendered for the following items:
{G.S. 20-37.7} $15.00 for the issuance of a special identification card
{G.S. 20-85} $40.00 certificate of title application
$15.00 to issue, duplicate, repossess a certificate of title
$15.00 to transfer, replace, duplicate registration card and plates
$15.00 to apply for and remove a lien from a certificate of title
$15.00 for each salvage certificate of title
$25.00 for each set of replacement Stock Car Racing Theme Plate
{G.S. 20-73(c)} $15.00 fee for failure to transfer title of ownership
{G.S. 20-42(b)} $10.00 fee to certify any DMV document for use in court
$5.00 for each accident report
DISTRIBUTION
Legislative changes in 1989 did not identify some of these fees as Highway Trust Fund
Revenues. The revenue collected from these fees is credited to the Highway Fund for general
68
highway purposes. Some of the revenue from the issuance of special ID cards is used to off-set
DMV operating expenses.
TAX CALENDAR
These fees are collected on a daily basis.
COMPARISON WITH OTHER STATES
A comparison with other states was not taken.
69
SAFETY EQUIPMENT PROCESS FEES
All motor vehicles subject to registration by the Division of Motor Vehicles are required to pass
an annual safety inspection. Vehicles registered in certain counties are required to pass both a
safety and an emission inspection.
ADMINISTERED BY
Department of Transportation Division of Motor Vehicles
Table 34
Highway Fund Safety Equipment Processing Fee Collections
Annual Percent of
Highway Fund Percent Highway Fund Tax
Fiscal Year Collections Change Collections
2000-01 4,010,440 -5.8 0.3
2001-02 4,024,782 0.4 0.3
2002-03 4,264,217 6.0 0.3
2003-04 4,421,842 4.0 0.3
2004-05 4,553,823 3.0 0.3
2005-06 4,883,720 7.2 0.3
2006-07 4,552,026 -7.0 0.3
2007-08 4,416,353 -3.0 0.2
2008-09 3,776,184 -15.0 0.2
2009-10 3,579,618 -5.2 0.2
BASE AND RATE
{G.S. 20-183.7} The safety equipment inspection fees total $9.10 per vehicle inspected. Of that
amount, $8.25 is for the inspection and remains with the inspection station. The remaining $0.85
is for the inspection sticker, with $0.55 going to the Highway Fund, $0.18 earmarked to the
Department of Insurance for the Volunteer Rescue/EMS Fund, and $0.12 dedicated to the
Rescue Squad Workers’ Relief Fund.
The inspection fee for inspecting both safety and exhaust standards is $30.00 per vehicle. Of that
amount, $23.50 is for the inspection and remains with the inspection station. The remaining
$6.50 is for the inspection sticker. Of this amount, $3.00 goes to the emission program account,
$1.75 goes to the telecommunications account, $0.65 is allocated to the Division of Air Quality,
$0.55 goes to the Highway Fund, $0.25 goes to the Highway Trust Fund Repayment Fees, $0.18
is distributed to the Department of Insurance for the Volunteer Rescue/EMS Fund, and $0.12 for
the Rescue Squad Relief Fund.
Note: Effective July 1, 2007, the distribution in the fee amount for the Emissions and Safety
Inspection changed from $23.50 to $23.75 and the corresponding amount for the Emissions and
Safety Sticker is changed from $6.50 to $6.25. This change in the fee structure reduces the $.25
70
allocation to the Division of Motor Vehicles from the Highway Trust Fund for the
implementation of the vehicle emissions and maintenance program.
Inspections are required for both safety and emissions systems in the following counties:
Alamance, Cabarrus, Catawba, Chatham, Cumberland, Davidson, Durham, Franklin, Forsyth,
Gaston, Guilford, Iredell, Johnston, Lee, Lincoln, Mecklenburg, Moore, Orange, Randolph,
Stanly, Rowan, Union, and Wake.
The phase-in dates for those counties that require the additional emissions inspections are below:
[Effective July 1, 2004]
Buncombe, Cleveland, Granville, Harnett, and Rockingham counties
[Effective January 1, 2005]
Edgecombe, Lenoir, Nash, Pitt, Robeson, Wayne, and Wilson counties
[Effective July 1, 2005]
Burke, Caldwell, Haywood, Henderson, Rutherford, Stokes, Surry, and Wilkes counties
[Effective January 1, 2006]
Brunswick, Carteret, Craven, New Hanover, and Onslow counties
DISTRIBUTION
Revenue from safety inspections is divided between the inspection station and the state as stated
under "Base and Rate." In addition, revenue from emission inspections is placed under a
separate account, and is used to support the emission program. Only Highway Fund revenue is
shown above.
TAX CALENDAR
Revenue is collected at the time of the inspection.
COMPARISON WITH OTHER STATES
A comparison with other states was not taken.
71
STAGGERED REGISTRATION FEES
All private passenger vehicles, vehicles for hire, motorcycles, certain mobile homes, and some
special mobile equipment are required to be registered with the Division of Motor Vehicles
before such vehicles can legally operate on public roads. A vehicle registration is for a 12 month
period generally from the date the title is issued or transferred.
ADMINISTERED BY
Department of Transportation Division of Motor Vehicles
Table 35
Highway Fund Staggered Registration Fee Collections
Annual Percent of
Highway Fund Percent Highway Fund Tax
Fiscal Year Collections Change Collections
2000-01 147,014,471 1.0 11.8
2001-02 149,565,091 2.0 12.0
2002-03 151,932,070 2.0 12.0
2003-04 158,680,221 4.4 12.0
2004-05 160,037,750 1.0 11.4
2005-06 187,563,245 17.2 11.2
2006-07 199,209,664 6.2 11.0
2007-08 197,432,008 -1.0 11.0
2008-09 195,931,739 -1.0 11.4
2009-10 189,076,290 -3.5 11.0
Note: Increase in fees effective October 2005; partial year collections FY 2005-06
BASE AND RATE
{G.S. 20-87} All private passenger vehicles (automobiles and motorcycles) and all private
property hauling vehicles licensed for 4,000 pounds (private pick-up trucks and vans) are
required to enter the staggered registration plan. A fee of $28.00 is levied on private passenger
cars of 15 passengers or less, and a fee of $31.00 is levied on private passenger cars of more than
15 passengers (Buses). Private passenger motorcycles pay a license plate fee of $15.00, except
when designed to transport property or additional passengers, and the tax is then $22.00. An
additional fee of $3.00 is imposed on the registration of each private motorcycle and the
proceeds are used to fund the Motorcycle Safety Instruction Program.
{G.S. 20-87(2)} U-Drive It Vehicles with the capacity to transport 15 or fewer passengers pay a
license plate fee of $51.00. House trailers pay an $11.00 license fee in lieu of other registration
fees. The fee for busses is $33.00. Automobile Dealers pay $28.00 per plate up to 5 plates and
$14.00 for each plate over 5 plates.
72
{G.S. 20-88(b)(1)} Private pick-up trucks and vans licensed for 4,000 pounds pay a license plate
fee of $28.00.
{G.S. 20-88(c)} Boat trailers, utility trailers and semi-trailers pay a license plate fee of $19.00.
{G.S. 20-85.1} There is a $1 processing charge for registrations by mail.
{G.S. 20-50} The fee to issue a temporary 10 day plate is $5.00.
DISTRIBUTION
Revenue is deposited in the Highway Fund for highway purposes.
TAX CALENDAR
All registrations are for a twelve-month period from the date of the vehicle's initial registration.
COMPARISON WITH OTHER STATES
All 50 states levy automobile registration fees. Fees may be based on vehicle weight, number of
passengers carried, engine size, horsepower, retail price, or some combination of the above.
Rates often vary within a state depending on the vehicle. Tax rates for the typical automobile
ranged from $7.20 to $278.70. The median tax rate for the nation was $67.00. Twenty nine
states had a higher automobile registration fee than North Carolina.
The average rate among the southeastern states (1) and the 11 most populated states (2) was $28.50
and $66.15 respectively. North Carolina ranked second in the southeastern states and ninth
among the largest states. A comparison of registration fees for small trucks and motorcycles
was not undertaken.
(1) Georgia, Kentucky, North Carolina, South Carolina, Tennessee, and Virginia.
(2) California, Georgia, Florida, Illinois, Michigan, Ohio, Pennsylvania, New Jersey,
New York, North Carolina, Texas.
Source: Department of Transportation, “Highway Taxes and Fees 2008”, U.S. Federal Highway
Administration, Washington, D.C., 2008, January 1010.
73
TRUCK LICENSE PLATE FEES
All commercial property-hauling vehicles are required to be registered with regard to weight and
load capacity. Effective January 1, 2006, all commercial property hauling vehicles with an
annual expiration date fall under a staggered registration plan.
ADMINISTERED BY
Department of Transportation Division of Motor Vehicles
Table 36
Highway Fund Truck License Plate Fee Collections
Annual Percent of
Highway Fund Percent Highway Fund Tax
Fiscal Year Collections Change Collections
2000-01 60,570,817 1.8 4.9
2001-02 61,474,240 1.5 5.0
2002-03 61,838,112 0.6 5.0
2003-04 66,816,761 8.1 5.0
2004-05 71,265,550 7.0 5.1
2005-06 126,061,965 77.0 7.5
2006-07 137,651,224 9.2 7.6
2007-08 137,959,629 0.2 7.7
2008-09 134,016,954 -3.0 8.0
2009-10 128,136,502 -4.4 7.5
Note: Increase in fees effective October 2005; partial year collections FY 2005-06
BASE AND RATE
{G.S. 20-88(1)} For the purpose of taxation, the determination of weight is based on combined
gross vehicle weight. A minimum fee of $24.00 for a farm vehicle and $28.00 for a non-farm
vehicle is levied under this schedule.
Vehicles in the truck category consist of private vehicles such as vans and pick-up trucks over
4,000 pounds, and commercial trucks. Commercial trucks generally carry their own products
both interstate and intrastate, but do not operate under the authority of either the Interstate
Commerce Commission or the North Carolina Utilities Commission. They basically include
service trucks, milk trucks, soft drink bottle trucks, beer trucks, and others. There is no separate
commercial truck license plate.
Vehicles in the truck category are subject to taxation according to the following rate and weight
schedule:
74
Table 37
SCHEDULE OF WEIGHTS AND RATES
(Per 100 lbs. of Gross Weight)
Weight/Rate Bracket Farm Non-Farm
Up to 4,000 lbs. $ 0.29 $ 0.59
4,001 to 9,000 lbs. 0.40 0.81
9,001 to 13,000 lbs. 0.50 1.00
13,001 to 17,000 lbs. 0.68 1.36
Over 17,000 lbs. 0.77 1.54
{G.S. 20-88(6)} The annual plate and registration fee for wreckers fully equipped weighing
7,000 pounds or less is $75 and those over 7,000 pounds pay $148.
{G.S. 20-88(6)(c)} A multi-year license plate for trailers or semi-trailers is available for $75. A
multi-year license plate and registration card are valid until the owner transfers the title or
surrenders the plate and registration to the Division of Motor Vehicles.
Replacement plates for all vehicles are $10.
DISTRIBUTION
Revenue is deposited in the Highway Fund for highway purposes.
TAX CALENDAR
Under the annual renewal plates were purchased between January 1 and February 15th for the
current calendar year. As of January 1, 2006, annual registration is staggered.
COMPARISON WITH OTHER STATES
All states levy truck license plate fees. Most states have a fee schedule based on the empty
weight of the vehicles. All states grant some type of preferential tax treatment to farm vehicles.
Rates often vary within a state depending on the vehicle size and weight. Average tax rates for
truck and truck tractors regardless of size and weight ranged from $6.48 to $173.23 as of
December 2008. The median tax rate for the nation was $55.42. Eleven states had a higher
truck registration fee than North Carolina.
The average rate among the southeastern states(1) and the 11 most populated states(2) was $25.65
and $49.66 respectively. North Carolina ranked first in the southeastern states and second
among the largest states.
(1) Georgia, Kentucky, North Carolina, South Carolina, Tennessee, and Virginia.
(2) California, Georgia, Florida, Illinois, Michigan, Ohio, Pennsylvania, New Jersey,
New York, North Carolina, Texas.
Source: Department of Transportation, “Highway Taxes and Fees 2008”, U.S. Federal Highway
Administration, Washington, D.C., January 2009
PART IV
HIGHWAY TRUST FUND TAXES
76
77
THE HIGHWAY TRUST FUND
Highway Trust Fund revenue is used to design and construct the state’s interstate road system.
This system includes primary interstate, NC and US routes and provides supplemental funding
for Powell Bill road maintenance.
The Highway Trust Fund receives support from four primary revenue sources. The first source is
the highway use tax or the sales tax on most noncommercial vehicle sales. The second source is
25% of the excise tax on motor fuels, and the third source is fees on certificates of title and other
miscellaneous title fees. The forth source is from interest earned on cash balances held with the
state treasurer.
Each summary outlines the subject being taxed, the tax rate or rates, total collections, any
distributions made from the collections, and any exemptions. A comparison with similar taxes
from other states is made for most schedules and is updated as often as national data is available.
78
Motor Fuel $ 381,909,743
Highway Use 440,483,265
Title and Registration Fees 82,843,951
Other Fees & Interest 3,913,687
Total $ 909,150,646
Chart 5
North Carolina Highway Trust Fund Tax Collections
2009-10
Title and
Registration
Fees
9% Motor Fuel
42%
Other Fees &
Interest
1%
Highway Use
48%
79
HIGHWAY USE TAX
When a motor vehicle is sold in the state or the title is transferred into the state, the vehicle is
taxed under the use tax. Prior to the creation of the Highway Trust Fund in 1989, the sales and
use tax on motor vehicles was collected under the General Fund.
ADMINISTERED BY
Department of Revenue
Table 38
Highway Trust Fund Use Tax Collections
Annual Percent of
Highway Trust Fund Percent Highway Trust Fund
Fiscal Year Tax Collections Change Tax Collections
2000-01 545,166,755 -0.0 58.9
2001-02 555,320,540 2.0 59.0
2002-03 552,758,579 -0.5 60.0
2003-04 578,346,241 5.0 59.0
2004-05 580,117,766 0.3 58.0
2005-06 577,236,704 -0.5 55.0
2006-07 605,047,356 5.0 54.0
2007-08 563,165,590 -7.0 53.0
2008-09 441,349,902 -22 49.0
2009-10 440,483,265 -0.2 49.0
BASE AND RATE
{G.S. 105-187.3} A 3% use tax with no cap is levied on the retail sales of most non-co

North Carolina
Tax Guide
2010
Office of State Budget and Management
20320 Mail Service Center
Raleigh, NC 27699-0320
919/807-4700
http://www.osbm.state.nc.us
ii
PREFACE
The Office of State Budget and Management prepares the North Carolina Tax Guide annually.
The Guide provides an overview of North Carolina's tax structure including General Fund,
Highway Fund, Highway Trust Fund, and local government taxes. The information contained
herein is intended for state lawmakers and planners, the business community, public interest
groups, and individuals. The North Carolina Tax Guide is not available in hard copy. If further
information is required, please contact this office at 919-807-4700.
iii
TABLE OF CONTENTS
PART I. INTRODUCTION
Overview.........................................................................................................................................3
Tax Burden......................................................................................................................................4
Chart 1. Tax Collections Received By North Carolina Governments (2009-10) ............................5
Chart 2. North Carolina State Tax Collections (2009-10) ...............................................................6
PART II. GENERAL FUND TAXES
General Fund Taxes .........................................................................................................................9
Chart 3. North Carolina General Fund Tax Collections (2009-10) ................................................9
Alcoholic Beverage Tax ................................................................................................................10
Cigarette/Tobacco Tax...................................................................................................................14
Corporate Income Tax ...................................................................................................................16
Estate Tax......................................................................................................................................21
Franchise Tax................................................................................................................................23
Freight Car Tax ..............................................................................................................................26
Gift Tax.........................................................................................................................................27
Individual Income Tax...................................................................................................................29
Insurance Tax................................................................................................................................33
Manufacturing Tax.........................................................................................................................35
Piped Natural Gas Tax...................................................................................................................36
Privilege License Tax ....................................................................................................................38
Sales and Use Tax..........................................................................................................................40
PART III. HIGHWAY FUND TAXES
The Highway Fund ........................................................................................................................47
Chart 4. North Carolina Highway Fund Tax Collections (2009-10) ............................................48
Dealer and Manufacturer License Fees..........................................................................................49
Driver's License Fees .....................................................................................................................51
Financial Security Restoration Fees...............................................................................................54
Gasoline Inspection Tax ................................................................................................................56
International Registration Plan ......................................................................................................58
Motor Fuels Excise Tax.................................................................................................................60
Overweight/Oversize Permits ........................................................................................................64
Penalties ........................................................................................................................................65
Registration Fees...........................................................................................................................67
Safety Equipment Process Fees .....................................................................................................69
Staggered Registration Fees...........................................................................................................71
Truck License Plate Fees ...............................................................................................................73
iv
PART IV. HIGHWAY TRUST FUND TAXES
The Highway Trust Fund ...............................................................................................................77
Chart 5. North Carolina Highway Trust Fund Tax Collections (2009-10)...................................78
Highway Use Tax ..........................................................................................................................79
Lien Recording Fees ......................................................................................................................81
Motor Fuels Excise Tax.................................................................................................................82
Title and Registration Fees ............................................................................................................85
PART V. LOCAL GOVERNMENT TAXES
Local Government Tax Revenues..................................................................................................89
Chart 6. North Carolina Tax Collections Received by Local Government (2009-10) .................90
Excise Tax on Beer and Wine - Local Share .................................................................................91
Excise Tax on Conveyances ..........................................................................................................93
Land Transfer Tax..........................................................................................................................95
Liquor By-The-Drink Tax..............................................................................................................96
Prepared Meals Tax .......................................................................................................................97
Privilege License Tax ....................................................................................................................99
Property Tax................................................................................................................................100
Room Occupancy Tax..................................................................................................................103
Sales and Use Tax........................................................................................................................104
Scrap Tire Disposal Tax...............................................................................................................106
Utility Excise Tax ........................................................................................................................107
White Goods Disposal Tax ..........................................................................................................109
PART VI. COMPARISON OF NORTH CAROLINA TAX COLLECTIONS
WITH THOSE OF OTHER STATES
Table 1. Level and Percentage Distribution of State and Local Tax Collections
by Source for 2007-08 ...........................................................................................................113
Table 2. State Ranking of State and Local Tax Burden, Per Capita and Percent
Personal Income for 2007-08.................................................................................................115
Table 3. State and Local Tax Collections, Per Capita and as a Percent of
Personal Income, for the United States, the Eleven Most Populated States, and the
Southeast, 2007-08.................................................................................................................117
Table 4. Percentage Distribution of State and Local Taxes by Type of Tax for
the United States, Eleven Most Populated States, the Southeast, and North
Carolina, 2007-08 ..................................................................................................................119
Table 5. Per Capita State and Local Tax Collections by Type of Tax for the United States,
Eleven Most Populated States, the Southeast, and North Carolina, 2007-08 ........................120
Table 6. State and Local Tax Collections as a Percent of Personal Income by Type
of Tax for the United States, Eleven Most Populated States, the Southeast,
and North Carolina for 2007-08.............................................................................................120
PART I
INTRODUCTION
2
3
OVERVIEW
The Tax Guide is designed to give the reader an overview of the tax structure of both state and
local governments of North Carolina. It contains a concise summary of each North Carolina tax
law, a statement of the tax calendar, and the growth and distribution of tax collections. Whenever
possible, comparisons of North Carolina tax laws with those of other states are presented.
The Tax Guide consists of six sections. Part I is the Introduction. The overall scope of the Tax
Guide is discussed in this section, along with an explanation of tax burden. Summaries of the tax
laws governing North Carolina's General Fund, Highway Fund, Highway Trust Fund, and local
government taxes follow in Parts II, III, IV and V.
In the last section, Part VI, an analysis is given of the total state and local tax burden in North
Carolina in comparison to that of other states. Tax burdens are evaluated on a per capita and
percentage of personal income basis. Special emphasis is made to compare North Carolina with
the six southeastern states and the eleven most populated states.
For information on recent tax legislation, see the 2010 Legislative Overview at:
http://www.ncga.state.nc.us/FiscalResearch/
4
TAX BURDEN
Tax burden measures the impact of a tax on the purchasing power of an individual or a business.
An understanding of tax burden is important in evaluating who pays a tax, how much is paid, and
in comparing tax efforts among different states.
Tax burden is the amount of sacrifice individuals make when paying their taxes. In its simplest
form, tax burden can be measured in terms of the number of dollars of an individual's income
that must be dedicated to tax payments. The more dollars an individual must sacrifice the greater
the tax burden.
Two common measures of tax burden are per capita tax payments and taxes paid as a percentage
of personal income. The per capita tax payment is the average amount of taxes paid by each
individual. It is found by dividing total state and local tax payments of a state by the population
of the state.
EXAMPLE
The population of State A is 100. The state and local tax burden of all the tax payers in State A is
$50,000. State B has a population of 75 citizens who have a combined state and local tax burden
of $30,000. The per capita tax payments in each state are determined as follows:
Per Capita Tax Payments = Total State and Local Taxes Paid = $50,000 = $500
(State A) Total State Population 100
Per Capita Tax Payments = Total State and Local Taxes Paid = $30,000 = $400
(State B) Total State Population 75
Taxes paid as a percentage of personal income are found by dividing the total amount of state
and local taxes paid by the total state personal income. For instance, suppose the citizens of
State A have a total income of $1,000,000 while the citizens of State B have a total income of
$400,000. Taxes paid as a percentage of personal income are found as shown below:
Taxes Paid as a Percentage of = Total State and Local Taxes Paid = $50,000 = 5%
Personal Income (State A) Gross State Personal Income $1,000,000
Taxes Paid as a Percentage of = Total State and Local Taxes Paid = $30,000 = 7.5%
Personal Income (State B) Gross State Personal Income $400,000
Taxes paid as a percentage of personal income are a better measure of tax burden than per capita
tax payments. In the above example, the average citizen in State A paid more taxes than the
average citizen in State B. Citizens in State A had a higher per capita tax burden. However,
since the average income of citizens in State A was much higher than that of State B, they
sacrificed a smaller portion of their income in tax payments. Obviously, their tax burden in
terms of real sacrifice (amount of private consumption given up to pay taxes) was less. The
5
concept of tax burden is frequently used in Part VII to analyze the tax effort of citizens of North
Carolina compared to the tax burden of citizens of other states.
State Taxes $ 20,386,834,738
Local Taxes 11,204,908,485
Total $ 31,591,743,223
Chart 1
State and Local Tax Collections
2009 - 10
Local Taxes
35%
State Taxes
65%
6
General Fund $ 17,746,040,209
Highway Fund 1,731,643,883
Highway Trust Fund 909,150,646
Total $ 20,386,834,738
Chart 2
North Carolina State Tax Collections
2009 - 10
General Fund
87.0%
Highway Fund
8.5%
Highway Trust
Fund
4.5%
PART II
GENERAL FUND TAXES
8
9
GENERAL FUND TAXES
General Fund tax revenues are used to finances state administered programs such as education,
public health, public safety, and the general services of state government.
The General Fund receives support from twelve primary sources. An income tax is levied on
individuals and businesses if some or all of their income is derived from North Carolina sources
during the tax year. Other business taxes, such as the franchise tax and privilege license taxes are
levied for the right to do business in and be protected under the revenue laws of this state.
Consumption related taxes, such as an excise tax, serve to control the consumption and
distribution of controlled substances. The sales tax is levied on most retail transactions. The use
tax applies when tangible personal property is purchased outside the state for consumption
within the state. The sales and use tax also applies to the lease of tangible personal property. An
estate tax is levied on the value of all property transferred at death. The gift tax is levied when
someone gives away money or an asset without receiving fair market value.
Each summary outlines the subject being taxed, the tax rate or rates, total collections, any
distributions made from the collections, and any exemptions. A comparison with similar taxes
from other states is made for most schedules and is updated as often as national data is available.
Individual Income $ 9,047,605,408
Corporate Income 1,197,865,423
Sales and Use 5,565,043,256
Franchise 724,451,377
Other 1,211,074,745
Total $ 17,746,040,209
Chart 3
North Carolina General Fund Tax Collections
2009-10
Individual Income
51%
Corporate Income
7%
Sales and Use
31%
Franchise
4%
Other
7%
10
ALCOHOLIC BEVERAGE TAX
Alcoholic beverage taxes are levied on beer, fortified and unfortified wines, and spirituous
liquor. Beer and wine are sold through retail outlets. The sale of spirituous liquor is administered
through local ABC boards and sold only in local ABC stores. Alcoholic beverages can only be
sold in those counties and cities for which such sales have been authorized.
ADMINISTERED BY
Department of Revenue and the Alcoholic Beverage Control Commission
Table 1
General Fund Excise Tax on Alcoholic Beverages
Annual Percent of
General Fund Percent General Fund Tax
Fiscal Year Collections Change Collections
2002-03 170,896,552 -2.2 1.4
2003-04 182,392,510 6.7 1.3
2004-05 189,308,658 3.8 1.2
2005-06* 200,845,242 6.1 1.2
2006-07 212,608,231 6.0 1.1
2007-08 225,125,416 6.0 1.2
2008-09 228,458,572 1.5 1.4
2009-10 282,316,942 24.0 1.6
*Partial year collection at combined state and local sales and use tax rate, effective
October 1, 2005. {G.S. 105-164.4(7)}
BASE AND RATE
Wholesalers and importers remit the excise taxes on beer and wine. Local alcoholic beverage
control boards remit the excise taxes on spirituous liquor.
{G.S. 105-113.80} Excise taxes on beer, wine, and spirituous liquors
• Beer is taxed at a rate of 61.71 cents per gallon. (Equivalent rate 5.8 cents/can.)
• Unfortified wine is taxed at 26.34 cents per liter.
• Fortified wine is taxed at 29.34 cents per liter.
• Spirituous liquor is taxed at 30% of case cost plus local board mark-up.
{G.S. 18B-804} Mark-up for local ABC Boards
An additional 3.5% levy on the retail price is allocated as part of ordinary profits of the ABC
store to the respective localities where the ABC store is located. Similarly, an add-on tax of 5
cents and 1 cent (mini bottle) per bottle of liquor sold in ABC stores is levied, with the revenue
distributed to local governments in the same manner as profits from the ABC stores.
11
By authorization of local elections, liquor “by the drink” may be sold by qualified restaurants
and clubs. Liquor sold by the drink in restaurants and clubs is subject to an additional tax of $20
per 4 liters. Liquor sold through a guest room cabinet is also taxed at $20 per 4 liters rate.
{G.S. 18B-902} Applications for Permits issued by NC Alcoholic and Beverage Control
Commission:
• To sell either malt beverages, fortified wine, or unfortified wine on premises - $400
• To sell either malt beverages, fortified wine, or unfortified wine off premises - $400
• Brown bagging permit for an establishment seating 50 or more - $400
o An establishment seating less than 50 - $200
• Special occasion permit - $400
o Limited special occasion permit - $50
• Mixed beverage or guest room cabinet permit - $1,000
• Culinary, winery special event, or mixed beverage catering permit - $200
• Unfortified and fortified winery, limited winery, brewery, distillery, wine importer and
wholesaler, malt beverage importer and wholesaler, or bottler permit - $300
• Fuel alcohol permit - $100
• Salesman permit - $100
• Vendor representative permit and certain special one-time permits - $100
• Nonresident malt beverage vendor or nonresident wine vendor permit - $100
• Liquor importer and bottler permit - $500
• Special wine tasting permit for wineries - $300, and for retail establishments - $100.
LOCAL GOVERNMENT DISTRIBUTION
{G.S. 105-113.82} State, Local Government, and Special Earmark Revenue
Local governments, for which the sale of beer and wine has been authorized, receive 23.75% of
the excise tax on malt beverages, 62% of the excise tax on unfortified wine, and 22% of the
excise tax on fortified wine. The remaining revenue is deposited into the General Fund for
general purposes.
{G.S. 105-113.81A} Revenue deposited in the General Fund is used for general purposes except
for $900,000 in excise tax collections on unfortified wine bottled in North Carolina. This revenue
is allocated to the Department of Commerce for the promotion of N.C. grapes. Of the $20 per
four liters levy on alcohol used for liquor by-the-drink sales, $10 goes to the General Fund, $1 to
the Department of Human Resources, and $9 to the local governments where the sales took
place. In addition, the 5 cents and the 1 cent per bottle “add-on” tax on all alcohol sold in
Alcoholic Beverage Control (ABC) stores goes to county commissioners for rehabilitation of
alcoholics.
{G. S. 18B-805(4) & C (1)} Local governments that have approved the sale of spirituous liquor
receive a portion of the profits. The local ABC Board pays quarterly, to the general fund of the
county or city for which the board is established, the sum of 3.5% mark-up, 1 cent per 50
milliliter bottle or less, and 5 cents on each bottle greater than 50 milliliter. The remaining
revenue is deposited into the General Fund for general purposes.
12
TAX CALENDAR
{G.S. 105-113.83} Wholesalers and importers of beer and wine, and ABC Boards must file
returns including monthly tax payments by the fifteenth day of the month for the previous
month’s activities.
COMPARISON WITH OTHER STATES
All fifty states levy alcoholic beverage taxes. Eighteen states, including North Carolina, sell
spirituous liquor only in state-licensed stores. Tax rates vary considerably as each state enacts
different tax rates on beer, wine, and spirituous liquors. Because of the wide variety of laws, it is
difficult to make an exact comparison of North Carolina’s laws with those of other states.
However, the following comparison will give the reader a good approximation of the relative tax
burdens.
The latest complete survey on the taxation of alcoholic beverages is for calendar year 2007 and
consists of the combined revenue per wine gallon from all state and local taxes, fees, and levies
on alcoholic beverages.
Taxes on beer range from $0.11 per gallon to $2.48 per gallon. The average overall tax rate for
the nation is $1.12 per gallon, while the average rate for the six southeastern states (1) stands at
$1.31 and $1.18 for the eleven most populated states (2). North Carolina’s rate is $1.35 per
gallon. North Carolina ranks eleventh in the nation, third among the controlled states, third
among the six southeastern states, and third among the eleven most populated states.
Taxes on wine range from $0.77 per gallon to $9.24 per gallon. The average overall tax rate for
the nation is $.67 per gallon, while the average rate for the six southeastern states stands at $3.96
and $4.00 for the eleven most populated states. North Carolina’s rate is $4.71 per gallon. North
Carolina has the seventh highest tax rate in the nation, while first among the six southeastern
states, third among the eleven most populated states and fifth among the control states.
Taxes on distilled spirits range from $3.96 per gallon to $36.51 per gallon. The average overall
tax rate for the nation is $16.68 per gallon, while the average rate for the six southeastern states
stands at $18.73 and $18.00 for the eleven largest states. North Carolina’s rate is $29.96 per
gallon. North Carolina has the forth highest combined tax rate in the nation, while second
among the six southeastern states, third among the eleven most populated states, and seventh
among the control states.
(1) Georgia, Kentucky, North Carolina, South Carolina, Tennessee, and Virginia.
(2) California, Georgia, Florida, Illinois, Michigan, Ohio, Pennsylvania, New Jersey,
New York, North Carolina, Texas.
13
Table 2
Revenue per Gallon from Combined State and Local Tax Collections
STATES BEER WINE SPIRITS
United States $ 1.12 $ .67 $ 16.68
Six Southeastern States 1.31 3.96 18.73
Eleven Largest States 1.18 4.00 18.00
Surrounding States
Georgia 1.73 4.18 12.94
Kentucky 1.00 4.64 13.18
North Carolina 1.35 4.71 29.96
South Carolina 1.11 2.36 10.86
Tennessee 1.69 4.22 16.15
Virginia 0.99 3.62 29.26
Source: Distilled Spirits Council of the United States, Inc. "Public Revenues from Alcohol
Beverages, 2007," Washington, D.C., January, 2009.
14
CIGARETTE/TOBACCO TAX
All tobacco products including cigarettes, pipe tobacco, and smokeless tobacco are subject to a
state excise tax. This tax is levied on the sale or possession of tobacco products in the state by a
distributor.
ADMINISTERED BY
Department of Revenue
Table 3
General Fund Excise Tax on Tobacco Products
Annual Percent of
General Fund Percent General Fund Tax
Fiscal Year Collections Change Collections
2001-02 41,531,347 -1.2 0.3
2002-03 41,998,713 1.1 0.3
2003-04 43,732,769 4.1 0.3
2004-05 42,981,044 -1.7 0.3
2005-06* 171,636,758 300.0 1.0
2006-07 241,174,320 41.0 1.3
2007-08 237,377,533 -1.6 1.3
2008-09 227,056,891 -4.35 1.4
2009-10 251,730,957 11.0 1.4
* Prior to the legislative change effective July 1, 2006, the tax rate was 5 cents per pack.
BASE AND RATE
{G.S. 105-113.5} A tax rate of 45 cents per pack of 20 cigarettes is levied on distributors
effective September 1, 2009. The rate per cigarette is 2.25 cents.
{G.S. 105-113.35} The excise tax levied on tobacco products other than cigarettes is 12.8% of
the cost price of the product.
{G.S.105-113.36} A $25 license fee is levied on wholesale dealers, and a $10 license fee is
levied on retail dealers for each place where a wholesale or retail dealer makes tobacco products
other than cigarettes, or receives or stores non-tax-paid tobacco products.
DISTRIBUTION
Revenue is deposited in the General Fund for general purposes.
TAX CALENDAR
{G.S. 105-113.37} Distributors, wholesalers, and retailer dealers file monthly returns with
payment of tax by the twentieth of each month for the previous month's activity.
15
COMPARISON WITH OTHER STATES
All states levy an excise tax on cigarettes. Tax rates, per pack of 20 cigarettes, range from 7 cents
to $3.46 per pack. Municipalities in six states can levy additional cigarette taxes. The median
tax for the nation was 118 cents per pack and North Carolina ranks 43rd in the nation with an
excise tax rate of 45 cents per pack.
Table 4
Distribution of State Cigarette Tax Rates
January 1, 2008
Cents Per Pack Number of States
Below 9 cents 1
10 cents to 49 cents 7
50 cents to 99 cents 15
100 cents to 149 cents 7
150 cents to 199 cents 6
Above 200 cents 14
Source: Federation of Tax Administrators, “State Excise Tax Rate on Cigarette, January 2010”,
Washington, DC. March 2010.
16
CORPORATE INCOME TAX
All corporations, both domestic and foreign, that do business in this state are required to file
annual income tax returns unless exempt from the corporate income tax.
ADMINISTERED BY
Department of Revenue
Table 5
General Fund Corporate Income Tax Collections
Annual Percent of
General Fund Percent General Fund Tax
Fiscal Year Collections Change Collections
2001-02 409,322,540 -11.1 3.3
2002-03 840,499,824 105.3 3.7
2003-04 776,964,847 -7.6 5.6
2004-05 1,193,529,164 53.6 7.7
2005-06 1,204,102,940 .9 7.1
2006-07 1,451,399,198 21.0 8.0
2007-08 1,111,668,852 -23.4 6.0
2008-09 835,544,512 -24.8 5.0
2009-10 1,197,865,423 43.4 7.0
BASE AND RATE
Temporary tax surcharge effective for tax years 2009 and 2010
All corporations subject to the corporate income tax are required to pay a 3% income tax
surcharge on North Carolina income. The surcharge is applied before the deduction of any
qualified tax credits or payments.
{G.S. 105-130.3 & G.S. 105-130.4} An income tax is levied on the net taxable income of all
corporations chartered in North Carolina (domestic) and foreign corporations doing business in
the state. In computing state net income, a corporation uses the net taxable income (as defined in
the Internal Revenue Code) rate in effect for the income year for which the returns are filed. The
applicable corporate income tax rate is 6.9%.
Multi-state corporations, those corporations that have taxable nexus in at least one state other
than North Carolina, are required to use a specific formula to determine taxable income to North
Carolina. The allocation formula used is a three-factor formula with a double weighting of the
sales factor. The formula is the average of the corporation’s ratio of capital stock, payroll, and
sales made within North Carolina to the totals of these factors, where the sales factor is double
weighted.
17
Three Factor Formula Details
Property Factor {G.S. 105-130.4, 17 NCAC 05C.0800}
The property factor includes all real and tangible property, employed by the corporation
during the income year and used to produce apportionable income.
Payroll Factor {G.S. 105-130.4, 17 NCAC 05C.0900}
The payroll factor includes the total amount of compensation paid in connection with earning
apportionable income during the income year.
Sales Factor {G.S. 105-130.4, 17 NCAC 05C.1000}
The sales factor means all gross receipts derived from transactions and regular business
activities in the course of its regular business operations.
EXEMPT CORPORATIONS
{G.S. 105-130.11} The following corporations are exempt from the North Carolina corporate
income tax. A more thorough list can be found in the General Statutes.
1. Fraternal beneficiary societies, operating for the exclusive benefit of the members
2. Co-operative banks organized for mutual purposes without profits and capital stock
3. Cemetery corporations and religious corporations
4. Business leagues, chambers of commerce, merchants associations, etc.
5. Insurance companies subject to the tax on gross premiums
6. Telephone membership and electric membership corporations
7. Organizations marketing the products of its members
8. Civic leagues organized for the purpose of promoting social welfare
9. Homeowner associations.
{G.S. 105-131.11} The taxation of the profit from an S-corporation is not subject to the 6.9%
corporate income tax rate. Rather, the pro rata share of the stockholder’s profits from an S-corporation
is subject to North Carolina’s individual income tax. Part-year resident shareholders
and nonresident shareholders of an S-corporation must also pay the tax. Part-year and
nonresident shareholders of an S-corporation pay the tax based on ratios of attributable and non-attributable
income to the state, during the tax year, and on the number of days the shareholder
resides in the state or in some other state during the tax year. S-corporations may claim the
credits and deductions for nonresident shareholders who elect not to file individual income tax
returns in North Carolina.
CORPORATE TAX CREDITS
North Carolina provides many corporate income tax credits. To qualify for credits, companies
must meet various criteria. The credits often apply to a portion of expenditures, and are subject
to maximum allowable amounts. Listed are some of the credits certain corporations are allowed
when filing a North Carolina corporate income tax return. Please refer to the Revenue Laws of
North Carolina for a more detailed list.
18
{G.S. 105-130.22} Credit for constructing a dwelling for handicapped persons
Corporate owners of multi-family rental units are allowed a credit of $550.00 for each dwelling
unit constructed for physically handicapped persons during the income year.
{G.S. 105-130.25} Credit for constructing a co-generating power plant
Any corporate entity, other than a utility, that constructs a co-generating power plant is allowed a
10% credit of the cost to purchase and install the electrical or mechanical power generating
equipment.
{G.S. 105-130.34} Credit for donating real property for conservation purposes
Corporations that make a donation in perpetuity of interest in real property are allowed a 25%
credit of the fair market value of the property.
{G.S. 105-130.36} Credit for conservation tillage equipment
Corporations that purchase conservation tillage equipment to be used in the farming process and
in the tree cultivation process are allowed a 25% credit of the cost of the equipment.
{G.S. 105-130.37} Credit for gleaned crop
Corporations that grow and allow the gleaning of a crop are allowed a credit of 10% of the
market price of the quantity of the crop.
{G.S. 105-130.39} Credit for certain telephone subscriber line charges
Corporations that provide local telephone services to low income residential customers at
reduced rates are allowed a credit equal to the difference in the discount rate and what the
customer would have paid had regular rates been charged.
{G.S. 105-130.41} Credit for use of North Carolina Ports
An income tax credit equal to 50% of a corporation’s income tax liability is allowed to those
corporations who use the state ports to load cargo onto or unloaded cargo from an ocean going
carrier.
{G.S. 105-130.44} Credit for poultry composting facility
Corporations that construct a poultry composting facility are allowed a credit of 25% of the cost
of installation, materials, and equipment costs of construction of such a facility during the
income year.
{G.S. 105-130.46} Credit for manufacturing cigarettes for export, increasing employment,
and utilizing state ports
Any corporation that manufactures cigarettes for export through the state ports and meets certain
employment levels is allowed a credit of 40 cents per one thousand cigarettes exported.
{G.S. 105-130.47} Credit for qualified expenses of a production company
Any production company that has qualified expenses of $250,000 or more is allowed a credit of
15% of the company’s qualified expenses for the income year.
19
{Article 3A of Chapter 105} Quality job and business expansion credits
The William S. Lee Quality Jobs and Business Expansion Act provides tax credit to corporate
taxpayers for investments in manufacturing machinery and equipment, job creation, research and
development, and work force training. The credits are based on a system that divides the state
into five enterprise zones. Each county in a zone is given a tier rank with tier one being the most
economically distressed and tier five being the least economically distressed. Taxpayers must
meet certain eligibility requirements and provide defined business development and expansion in
a zone to receive one of several allowed corporate income tax credits.
DISTRIBUTION
{G.S. 115C-546.1(b)} Revenue is deposited in the General Fund for general purposes, except for
2/31st of each previous quarter's collection, which is transferred to the Public School Building
Capital Fund. Only General Fund revenue is shown above.
TAX CALENDAR
{G.S. 105-130.17} Corporations are required to file a corporate tax return on or before the
fifteenth day of the third month following the close of the corporation’s income year. Some
mutual associations are required to file by the fifteenth of September following the close of the
calendar year and those associations that operate on a fiscal year basis file on or before the
fifteenth day of the ninth month following the close of the fiscal year. Exempt organizations that
are required to file a return file on their unrelated business income by the fifteenth day of May
following the close of the calendar year and those operating on a fiscal year file their return on or
before the fifteenth day of the fifth month following the close of the fiscal year. {G.S. 105-
131.7} S Corporations file their annual return by the due date for C Corporations.
COMPARISON WITH OTHER STATES
Forty-five states levy corporate income taxes. Most states follow the federal definition of
income. Of the 44 states levying corporate income taxes, 25 states had a higher marginal rate
than North Carolina, while 18 states had a lower marginal rate.
Table 6
Distribution of State Corporate Income Tax Rates
As of January 2009
Highest
Marginal Rate Number of States
Below 5.0% 9
5.0% to 5.9% 4
6.0% to 6.9% 13
7.0% to 7.9% 8
8.0% to 8.9% 10
9.0% to 9.9% 5
10.0% and above 1
20
Source: Federation of Tax Administrators, “State Excise Tax Rate on Cigarette, January 2010”,
Washington, DC. March 2010.
21
ESTATE TAX
In 1999, North Carolina repealed the inheritance tax in favor of the estate tax. An estate tax is
imposed on the right to transfer property at death and is not based on the relationship of the
beneficiaries.
ADMINISTERED BY
Department of Revenue
Table 7
General Fund Estate Tax Collections
BASE AND RATE
{G.S. 105-32.1} For decedents dying on or after January 1, 2005, the amount of North Carolina
estate tax imposed is the amount of the state death tax credit that, as of December 31, 2001,
would have been allowed under section 2011 of the Code against federal taxable income. The
tax may not exceed the amount of the federal estate tax due under the Code. The federal taxable
estate and the amount of the federal estate tax due are determined without taking into account the
deduction for state death taxes allowed under section 2058 of the Code, and the credits allowed
under sections 2011 through 2015 of the Code. {G.S. 105-32.2}
North Carolina conformed to the federal estate tax by increasing the exemption from $1.5
million to $2.0 million effective January 1, 2006.
DISTRIBUTION
Revenue is deposited in the General Fund for general purposes.
Annual Percent of
General Fund Percent General Fund Tax
Fiscal Year Collections Change Collections
2001-02 104,750,885 -15.0 1.0
2002-03 112,504,407 7.4 1.0
2003-04 128,479,443 14.2 1.0
2004-05 135,211,344 5.2 1.0
2005-06 133,379,473 -1.4 1.0
2006-07 161,586,810 21.2 1.0
2007-08 158,764,850 -2.0 1.0
2008-09 104,256,014 -34.3 1.0
2009-10 71,905,766 -31.0 0.4
22
TAX CALENDAR
A North Carolina estate tax return is due and payable on the date the federal estate tax return is
due and payable. Interest accrues on any unpaid tax beginning nine months after the date of
death.
COMPARISON WITH OTHER STATES
Over the past 20 years, most states have repealed their inheritance tax and retained the federal
estate death tax credit, also referred to as the state pick-up tax. In 2001, the federal government
passed the Economic Growth and Tax Relief Act which repealed the federal death tax credit over
four years. However, with the passage of the Act, many states began eliminating their estate
taxes completely. As of February 2004, 28 states were scheduled to repeal their estate,
inheritance, or succession taxes starting in 2005. Some of the remaining states continue to retain
a revenue stream from an inheritance tax or an estate tax by remaining linked to federal law as it
existed prior to 2001. The states that decoupled from federal law continue to levy stand-alone
inheritance or estate taxes and are unaffected by the federal legislation.
Fourteen states decoupled and continue to levy an estate tax that is very similar to the state pick-up
tax. Three states replaced their pick-up tax with estate taxes: Connecticut, Kansas and
Washington State. Kansas created a separate rate schedule and, effective January 1, 2006,
increased the exemption to $2 million; in 2009 the exemption increases to $3 million. Maine has
permanently decoupled with a $1 million exemption.
Seven states levy an inheritance or estate tax that was never tied to the federal estate death tax
credit. Maryland, Nebraska, and New Jersey levy an inheritance tax and an estate tax that is
similar to the pick-up tax prior to the 2001 federal act.
Effective for tax year 2006, the portion of the federal estate tax that is exempt from taxation was
$2 million per individual and $4 million per couple. In 2009, the exemption increases to $3.5
million per individual or $7 million per couple culminating in a full repeal in 2010.
As of March 2006, seventeen states and the District of Columbia have retained their estate taxes
after the federal changes. Of these, thirteen states, including North Carolina, acted to decouple
from the federal changes. Four states and the District of Columbia will remain decoupled unless
they take legislative action.
Sources:
• Commerce Clearing House, Inc. “State Tax Handbook”. Chicago, Illinois, 2010.
• Joel Michael, Legislative Analyst, “State Response to the 2001 Federal Estate Tax
Credit”. Minnesota House of Representatives, February 2004.
• Elizabeth C. McNichol, “State Taxes on Inherited Wealth Remain Common: 24 States
Levy an Estate or Inheritance Tax”, Center on Budget and policy Priorities, Washington
DC. 2006.
23
FRANCHISE TAX
A franchise tax is levied on domestic and foreign corporations, associations, joint stock
companies, trust, and any other organization which has capital stock represented by shares and
enjoys corporate powers, rights, and privileges under the laws of North Carolina.
ADMINISTERED BY
Department of Revenue
Table 8
General Fund Franchise Tax Collections
Annual Percent of
General Fund Percent General Fund Tax
Fiscal Year Collections Change Collections
2000-01 580,431,850 89.1 4.6
2001-02 446,270,680 -23.1 4.0
2002-03 429,128,005 -4.0 4.6
2003-04 445,294,486 3.8 3.2
2004-05 498,681,391 12.0 3.2
2005-06 477,055,108 -4.3 3.0
2006-07 531,412,140 11.4 3.0
2007-08 574,460,805 8.1 3.0
2008-09 651,938,670 13.5 4.0
2009-10 724,451,377 11.1 4.1
BASE AND RATE
{G.S. 105-122} The franchise tax includes taxes on persons, partnerships, and certain
corporations both foreign and domestic for the privilege of doing business in the state.
The franchise tax is computed by applying the rate of $1.50 per $1,000.00 to the largest of the
three bases:
• Capital stock, surplus, and undivided profits apportioned to the state
• The net accounting value of real and tangible property in the state
• 55% of the appraised value of property subject to the property tax.
The minimum tax liability is $35.00, with no maximum except for qualified holding companies.
Corporations doing business in North Carolina and in other states calculate the share of capital
stock tax due to North Carolina by the same method used for the corporate income tax: the
average of the corporation’s shares of property, payroll and sales, with the sales factor double
weighted.
24
{G.S. 105-114.1} Limited Liability Companies
Limited liability companies are exempt from the franchise tax. However, if a corporation or an
affiliated group of corporations owns more than 50% of the capital interest in a limited liability
company, the corporation or group of corporations must include in its three tax bases (capital
stock, surplus, and undivided profits) the limited liability company’s appraised ad valorem tax
value of property and the company’s actual investment in tangible property in the state.
{G.S. 105-116} Power and Light, Water, and Sewerage Companies
A 3.22% tax rate is applied to the total gross receipts resulting from the sale of electricity in the
state, less certain allowable deductions. Water companies are taxed at 4.0% and public sewage
companies are taxes at 6.0%. In addition, power and light utility services are also subject to a
sales tax. (See "Sales and Use Tax" in this section.)
{G.S. 105-121.1} Mutual Burial Associations
The franchise tax on mutual burial associations is based on membership and ranges from $15 for
associations having less than 3000 members to $50 for associations having 30,001 or more.
{G.S.105-120.2} Holding Companies
The tax rate is $1.50 per $1,000 of the value of the capital stock, surplus, and undivided profits
apportioned to North Carolina. There is a maximum tax liability of $75,000 for corporations
subject to the franchise tax, and a minimum tax of $35.00. If the tax liability exceeds $75,000 the
franchise tax is calculated on the greater amount of:
1. Fifty-five percent (55%) of the appraised value of real estate and tangible personal
property in North Carolina
-or-
2. Net book value of real and tangible personal property in North Carolina.
DISTRIBUTION
{G.S. 105-116.1(a)(2)} The state distributes to municipalities approximately 3.09% of the 3.22%
gross receipts tax levied and collected on power and light companies from taxable sales within
municipal districts. Distributions are made seventy five days after the end of a calendar quarter
and reduced by a limited hold harmless adjustment and an amount for administering the
distribution. The remaining gross receipts revenue, plus revenue from all other sources under
the franchise tax schedule remain with the General Fund, and are used for general purposes.
TAX CALENDAR
{G.S. 105-122(a) & G.S. 105-116(b)} Electric power companies remit the franchise tax in the
same manner as the sales and use tax {G.S. 105-164.16}. If a company’s tax liability is less that
$100.00 monthly the franchise tax is remitted quarterly. When a company’s tax liability exceeds
$100.00 but is less than $10,000 a month, the tax is remitted monthly. In the case where the tax
liability exceeds $10,000 in a month, the company is to remit semi-monthly through electronic
transfer. All other utility companies with an average utility franchise tax of $20,000 or more per
month are required to remit by electronic transfer. Mutual Burial Associations pay the tax on or
25
before April 1 of each year. General business corporations, unless otherwise stated, file on the
15th day of the third month following the close of the income year.
COMPARISON WITH OTHER STATES
It is difficult to make a national comparison of corporate franchise taxes. The classification of a
“franchise tax” can lead to misinterpretation if one relies on name alone. Some states use
corporate income as the base for the franchise tax. Other states may impose a franchise tax on
some measure of capital stock. In some states, one-time or recurring registration fees are
classified as a franchise tax. In the states where the franchise tax is measured on a definition of
capital stock, the base almost always includes a combination of shares of outstanding stock,
surplus, undivided profits, and indebtedness, for which the intent is to act as a measure of the
privileges granted through the franchise tax. The apportionment practices among states vary
widely in the treatment of capital stock for both domestic and foreign corporations. Generally,
the tax rate many states impose ranges from $1 to $3 per $1,000 of capital stock. However the
rate structure varies widely across states with differential rates and percentages that apply to
different types of domestic and foreign corporations.
Sources:
• Commerce Clearing House, Inc. “State Tax Handbook”. Chicago, Illinois, 2010.
• Matthew N. Murray, Franchise/Privilege Tax, State. University of Tennessee, 1996.
26
FREIGHT CAR TAX
Companies that engage in the operation and lease of freight cars pay a gross earnings tax. This
tax is in place of a property tax.
ADMINISTERED BY
Department of Revenue
Table 9
General Fund Freight Car Tax Collections
Annual Percent of
General Fund Percent General Fund Tax
Fiscal Year Collections Change Collections
2001-02 518,887 4.3 $6,200
Married, filing jointly $11,000
Married, filing jointly one age 65 > $11,600
Married, filing jointly both age 65 > $12,200
Married filing separate returns $2,500
Head of Household $6,900
Head of Household age 65 > $7,650
Widow w/ dependent $8,500
Widow age 65 > $9,100
Children and other Dependents
There is a separate filing status for single and married dependents either age 65 or older or blind.
These individuals are subject to the individual income tax if the amount of earned, unearned,
and/or gross income exceeds specific minimum amounts. In addition, these taxpayers must
follow specific instructions when making adjustments to federal taxable income in order to
determine state taxable income. For additional information on the tax treatment of this class of
taxpayer, please see the Department of Revenue’s Instructions for Filing Form D-400.
(http://www.dor.state.nc.us/downloads/D401.pdf)
31
{G.S. 105-134.6} In calculating state taxable income, certain adjustments must be made to the
federal taxable income in order to derive state taxable income.
Each personal exemption for married filing jointly (two exemptions), head of household, single,
and married filing separately taxpayers is $2,500 for a taxpayer(s) whose federal adjusted gross
income (AGI) is less than the amounts shown below, and $2,000 if more than these amounts.
Federal
Filing Status Adjusted Gross Income
Married, filing jointly $100,000
Head of Household 80,000
Single 60,000
Married, filing separately 50,000
Effective for taxable years beginning on or after January 1, 2004, the filing status and standard
deduction are as follows:
Filing Status Standard Deduction
Married, filing jointly $6,000
Head of Household $4,400
Single $3,000
Married, filing separately $3,000
Table 14
Rate and Tax Bracket Structure
{G.S. 105-134.2}
Married Married Head of
Rate Filing Joint Filing Separate Household Single
6.0% $ 0 - 21,250 $ 0 - 10,625 $ 0 - 17,000 $ 0 - 12,750
7.0% 21,251 - 100,000 10,626 - 50,000 17,001 - 80,000 12,751 - 60,000
7.75% 100,001 - Above 50,001 - Above 80,001 - Above 60,001 - Above
DISTRIBUTION
Revenue is deposited in the General Fund for general purposes, except for $95,331,927 that is
dedicated to local governments as a reimbursement for the repeal of the intangible personal
property tax.
TAX CALENDAR
Returns and tax payments are due by April 15 for income earned during the previous calendar
year.
{G.S. 105-163.2 & G.S. 105-163.6} Employers who withhold an average of less than $250 per
month are required to file and remit tax payments quarterly. Payments are due on the last day of
the first month following the end of the calendar quarter for withholdings of the previous quarter.
Every employer required to deduct and withhold an average of between $250 and $2,000 in
32
income taxes per month, and all employers engaged in any business which is seasonal or
temporary in nature, shall make returns and payments of such withholdings by the fifteenth day
of the month following the month in which such amounts were withheld. Amounts withheld in
December of the tax year are due on January 31. Employers who withhold an average of at least
$2,000 per month are required to remit payments (semiweekly) in accordance with the federal
withholding payment schedule.
{G.S. 105-163.15(f)} Estimated income tax payments are required, if the taxpayer expects the net
estimated tax less allowable credits to be more than $1,000. Payments are due in four
installments for the estimated current year's income by April 15, June 15, September 15, and
January 15 (for the last quarter of the preceding year).
COMPARISON WITH OTHER STATES
As of January 1, 2010, forty three states levy individual income taxes, with two taxing only
dividend and interest income and seven states do not tax individual income. Most states follow
the Federal definition of gross or taxable income. However, tax rates, deductions, and
exemptions vary widely by state.
For tax year 2010, North Carolina has the fifteenth highest marginal tax rate in the nation at
7.75%, North Carolina has the second marginal tax rate among the six southeastern states, and
the forth highest among the eleven most populous states.
For fiscal year 2007-08, North Carolina relied more heavily on the individual income tax than
most other states, obtaining 22% of its state and local taxes from the individual income tax as
compared to 16% for the nation.
On a national basis, 2.5% of state personal income was devoted to state individual income tax
payments, while North Carolina citizens allocated 3.3% of their income to individual income tax
payments.
In terms of per capita income, the average taxpayer in the nation paid $1,003.00 in individual
income tax payments, while North Carolina taxpayers paid $1,192..00.
(1) Georgia, Kentucky, North Carolina, South Carolina, Tennessee, Virginia.
(2) California, Florida, Georgia, Illinois, Michigan, New Jersey, New York, North Carolina,
Ohio, Pennsylvania, Texas.
Source: Federation of Tax Administrators, “State Excise Tax Rate on Cigarette, January 2010”,
Washington, DC. March 2010.
Source: United States Census Bureau. State and Local Government Finance by Level of
Government and by State; 2007-08.
33
INSURANCE TAX
The gross premiums from all insurance contracts covering persons, property and risk are subject
to the insurance tax. Insurance companies that pay a gross premiums tax are not taxed under the
franchise tax or the corporate income tax.
ADMINISTERED BY
Department of Revenue and Department of Insurance
Table 15
General Fund Gross Receipts on Insurance Companies
Annual Percent of
General Fund Percent General Fund Tax
Fiscal Year Collections Change Collections
2001-02 340,785,358 11.4 2.7
2002-03 408,873,355 20.0 2.4
2003-04 423,405,050 3.6 3.1
2004-05 431,664,202 2.0 3.0
2005-06 431,729,295 .02 3.0
2006-07 475,545,413 10.0 3.0
2007-08 492,698,607 4.0 3.0
2008-09 466,601,945 -5.3 3.0
2009-10 486,848,660 4.3 3.0
BASE AND RATE
{G.S. 105-228.5} The insurance tax is measured on the gross premiums from business done
during the previous year on contracts covering persons, property, and risks resident or located in
the state. There are two base gross premium tax rates that are applied to insurance companies:
• 2.5% tax on the gross premiums of worker's compensation policies
• 1.9% tax on the gross premiums of all other insurance policies including health
maintenance corporations, hospitals, and medical and dental service corporations.
Note: The 1.0% gross premiums tax on HMO’s was repealed effective January 1, 2007.
ADDITIONAL TAXES
{G.S. 105-228.5} In addition to the 2.5% rate, fire and lightning contracts are taxed an additional
1.33% on the gross premiums. Fire and lightning contracts, for coverage within fire districts, are
taxed an additional .05%. A portion of the proceeds from each of these taxes goes to help fund
fire safety organizations.
{G.S. 58-6-25} Insurance Regulatory Charge
The General Assembly sets the insurance regulatory by legislation. For the 2009 calendar year,
the rate is 5.5% of an insurance company’s premium tax liability for the tax year. The rate for
34
calendar year 2010 is increased to 6%. When computing this charge, an insurance company does
not include any of the additional taxes levied under G.S.105-228.
{G.S. 105-228.5A} Insurance Guaranty Association
The North Carolina Guaranty Association covers life insurance and casualty insurance
companies. Assessments are levied to cover the cost of insolvency and liquidations. A tax credit
against premium tax payments equal to the amount of the assessment is allowed.
An insurer who pays the gross premiums tax is allowed a credit against the tax equal to 20% of
the amount of the assessment in each of the five taxable years following the year in which the
assessment was made.
DISTRIBUTION
{G.S. 105-228.5(d), G.S. 58-87-5, and G.S. 58-6-25} The proceeds from the insurance
regulatory charge are credited to the Insurance Regulatory Fund. Moneys from the Fund are used
to defray the expenses associated with the operations of the Department of Insurance.
Twenty five percent of the 1.33% gross premiums on fire and lightening contracts are deposited
with the Volunteer Fire Department Fund. These funds are used to make grants to purchase
equipment and for capital improvements by volunteer fire departments. Three percent of the tax
proceeds from the .05% gross premiums tax on fire and lightning contracts are credited to the
State Fireman’s Association for general purposes. The remainder of the tax proceeds is deposited
in the General Fund. Only General Fund revenue is shown above.
TAX CALENDAR
{G.S. 105-228.5 (e) & (f)} Gross premium taxes are due by March 15 for the previous calendar
year's activities. Insurance companies with a premium tax liability of $10,000 or more are
allowed to remit the tax in three equal installments. The installment payments must equal at
least 33 1/3% of the premium tax liability for the previous year. Payment is due on or before the
fifteenth of April, June, and October. Regulatory fees are due at the time the gross premium tax
is due.
Effective for the tax year 2007, health maintenance organizations are to remit two estimated tax
payments, with each payment being equal to 50% of their estimated premium tax liability for the
2007 tax year. The estimated payments are due by April 15 and June 15, 2007.
COMPARISON WITH OTHER STATES
Every state levies an insurance premium tax, which is paid in lieu of other taxes. The most
typical premium tax rate is approximately 2%. It is difficult to compare rates between states
because premium taxes vary depending on the type of policy and other special provisions apply.
However, it appears that North Carolina's premium taxes are typical in comparison to other
states.
Source: Commerce Clearing House, Inc. “State Tax Handbook”, Chicago, Illinois, 2010.
35
MANUFACTURING TAX
There is a special type of privilege tax classification applied to certain machinery and equipment
used in manufacturing and recycling. The special classification also applies to replacement parts
and accessories.
ADMINISTERED BY
Department of Revenue
Table 16
General Fund Manufacturing Tax Collections
Annual Percent of
General Fund Percent General Fund Tax
Fiscal Year Collections Change Collections
2005-06 11,951,991 N/A .07
2006-07 36,558,7801 206 .20
2007-08 37,748,630 3.3 .20
2008-09 32,865,620 -13.0 .20
2009-10 31,897,136 -3.0 .20
Note: FY 2005-06 is a partial year collection.
HISTORIC NOTE
In the past, North Carolina levied a 1% sales and use tax with an $80.00 cap that was applied to
certain manufacturing and agriculture equipment. The tax was known as the mill machinery tax.
Prior to Fiscal Year 2005-06 the tax collections from the 1% manufacturing class of property
were included under the sales and use tax. Due to the Streamlined Tax Agreement, in which
North Carolina participated, a 1% preferential sales tax rate was not allowed to be considered in
the sales and use tax classification. In 2005, the General Assembly classified manufacturing
equipment subject to a manufacturing privilege tax.
BASE AND RATE
{G.S. 105-187.51} Certain equipment and machinery, including parts and accessories used in the
production process, are taxed at 1% with an $80.00 cap. The 1% classification also applies to
equipment purchased and used by recycling and research and development companies. Fuel
used in the production process is taxed at 1% without a cap.
DISTRIBUTION
The net proceeds from this tax are deposited in the General Fund for general purposes.
TAX CALENDAR
{G.S. 105-164.16} The manufacturing tax is collected and remitted in the same manner as the
sales and use tax.
COMPARISON WITH OTHER STATES
A comparison with other state has not been prepared.
36
PIPED NATURAL GAS TAX
Piped natural gas received for consumption within the state is subject to an excise tax. Natural
gas sales subject to the excise tax are not subject to the sales and use tax or the gross receipts tax.
ADMINISTERED BY
Department of Revenue
Table 17
General Fund Tax Collections on Piped Natural Gas
Annual Percent of
General Fund Percent General Fund Tax
Fiscal Year Collections Change Collections
2001-02 40,949,924 10.0 .33
2002-03 36,853,402 -10.0 .30
2003-04 38,994,881 6.0 .30
2004-05 35,081,603 -10.0 .23
2005-06 33,654,268 -4.1 .20
2006-07 36,057,204 7.1 .20
2007-08 36,476,388 1.2 .20
2008-09 34,240,028 -6.1 .20
2009-10 33,794,094 -1.3 .20
BASE AND RATE
{G.S. 105-187.41} Prior to 1999, piped natural gas sales were subject to 3% sales and use tax
and a 3.22% gross receipts tax. In 1999, the sales and gross receipts taxes were repealed in favor
of an excise tax. The tax is based on the monthly volume of natural gas received by the final
user. (The excise tax became effective July 1, 1999)
A local distribution company making deliveries to a sales or transportation customer is
considered the final user for tax purposes and is responsible for paying the tax. If the piped
natural gas is received by direct access from an interstate gas pipeline, the person, firm, or
corporation receiving the gas is responsible for paying the tax.
Therms Rate
First 200 $0.050
201 to 15,000 0.035
15,001 to 60,000 0.024
60,001 to 500,000 0.015
Over 500,000 0.003
37
DISTRIBUTION
{G.S. 105-187.44} Taxpayers are required to file quarterly returns with the Department of
Revenue. The quarterly returns report the amount of piped natural gas delivered to sales and
transportation customers in each city of the state. Within 75 days of the end of each quarter, the
Department of Revenue distributes to municipalities one-half of the amount of tax attributable to
the activity within their jurisdiction. The remaining revenue is deposited in the General Fund for
general purposes.
TAX CALENDAR
{G.S. 105-187.43} Payments are due semimonthly in accordance with the schedule set out in
section G.S. 105-164.16 for semimonthly payments of sales and use taxes.
TAX COMPARISON
A tax comparison was not undertaken.
38
PRIVILEGE LICENSE TAX
A license tax is imposed on certain business for the privilege of engaging in a specific business
activity during the fiscal year.
ADMINISTERED BY
Department of Revenue
Table 18
General Fund Privilege License Tax Collections
Annual Percent of
General Fund Percent General Fund Tax
Fiscal Year Collections Change Collections
2001-02 26,579,102 -41.0 .02
2002-03 44,721,244 68.3 .04
2003-04 41,615,694 -7.0 .30
2004-05 44,992,019 8.1 .29
2005-06 45,569,504 1.3 .27
2006-07 46,277,585 1.6 .30
2007-08 56,309,007 22.0 .30
2008-09 37,515,608 -33.4 .20
2009-10 39,196,662 4.5 .22
BASE AND RATE
{G.S. 105-33} Various business license taxes are levied on persons, firms, or corporations
engaging in certain businesses or professions. The tax is paid annually on or before the first of
July.
{G.S. 105-37.1} Dances, Athletic Events, Shows, Exhibitions and Other Entertainment
A 3% gross receipts tax is levied on the receipts of certain athletic, entertainment, and exhibition
events where the admission fee exceeds 50 cents. Counties and cities are allowed to levy a
privilege license tax on some business activities but the tax cannot exceed $25.00.
{G.S. 105-38.1} Motion Picture Shows
A 1% gross receipts tax is levied on the operation of motion picture shows. If a person engages
in motion picture entertainment and a business under G.S. 105-37.1, the privilege license tax
under G.S. 105-37.1 applies to the entire gross receipts from both activities.
{G.S. 105-41} Attorneys and Other Professionals
Individuals engaged in various professions including physicians, attorneys, engineers, public
accountants, and so forth pay a $50 annual license fee. Accounting firms pay an additional
privilege tax of $12.50 for each employee engaged in accounting practices. If an individual
engages in more than one business activity under this section, the individual must secure a
39
privilege license for each activity. Counties and cities are not authorized to levy a tax under this
section.
{G.S. 105-83} Installment Paper Dealers
Privilege license taxes are also levied on installment paper dealers at a rate of .227% of the face
value of all installment paper, notes, bonds, contracts or evidence of debt for which a lien against
personal property, located in the state, is made to secure payment.
{G.S. 105-88} Loan Agencies
Any business, firm, or organization engaged in the business of making loans and lending money,
check cashing, and in the pawnbroker business must pay a privilege license tax of $250.00 for
each location. This section does not include banks, industrial banks, trust companies, savings
and loan associations, cooperative credit unions, and real estate companies.
{G.S. 105-102.3} Banks
Every bank or banking association, including national banking associations that operate in the
state, must pay a privilege license tax equal to $30.00 per $1,000,000 in total assets.
{G.S. 105-102.6} Publishers of Newsprint Publications
The privilege license tax for newspaper publishers is based on a minimum recycled content. The
tax is levied on each publisher whose recycled content is less that 40%. The rate is $15.00 for
each ton by which a publisher falls short of the minimum.
DISTRIBUTION
Net Proceeds of the privilege license tax are deposited in the General Fund for general purposes.
TAX CALENDAR
Taxes for annual licenses are due annually by July 1 for the upcoming fiscal year. Gross receipts
taxes on entertainment and motion pictures are due by the 10th day after the end of each month.
COMPARISON WITH OTHER STATES
All states have occupation or business license taxes or fees. The occupations and privilege
license tax rates vary significantly within and between states.
Source: Commerce Clearing House, Inc. “State Tax Handbook”, Chicago, Illinois, 2010.
40
SALES AND USE TAX
The sales and use tax is levied on the gross receipt of taxable transactions such as retail sales, the
lease or rental of tangible personal property and some services. The sales and use tax rate is a
combined rate made up of the state rate and the sum of the local option sales and use tax rates.
ADMINISTERED BY
Department of Revenue
Table 19
General Fund Sales and Use Tax Collections
Annual Percent of
General Fund Percent General Fund Tax
Fiscal Year Collections Change Collections
2001-02 3,705,769,832 8.0 30.0
2002-03 3,922,821,877 6.0 27.3
2003-04 4,222,201,842 7.6 30.5
2004-05 4,477,159,178 6.0 29.0
2005-06 4,893,911,220 9.3 29.0
2006-07 4,995,570,841 2.1 27.0
2007-08 4,981,673,149 -.3 27.0
2008-09 4,677,947,376 -6.10 28.0
2009-10 5,565,043,256 19.0 31.4
BASE AND RATE
Temporary sales and use tax increase
Effective September 1, 2009, the North Carolina General Assembly enacted a temporary
additional 1% state sale and use tax rate to the general sales and use tax rate. The temporary rate
is set to expire July 1, 2011. For this period, the combined state and local rate will increase in
most counties from 6.75% to 7.75%. (See section on local government sales and use tax for the
affect of the temporary sales and use tax increase on the local government sales and use tax rate.)
{G.S. 105-164.4} The general state sales tax is imposed on the retail sale, lease, or rental of
tangible personal property not specifically exempt or subject to taxation at a reduced rate. Until
October 1, 2008, all items that are subject to the state sales tax rate of 4.25% are also subject to
the 2.5% Local Government Sales and Use Tax. After October 1st, the state rate will increase to
4.5% and the local rate will be reduced to 2.25%. Effective October 1, 2009, the state and local
rates will change again by one-quarter of a percent. At that time the state rate will be 4.75% and
the local rate will be 2%. When added to the temporary additional 1% rate the state rate will be
5.75%. The “combined rate” is 7.75% in eight-two counties of the state. (See sales tax section
under Local Government Revenues for changes in some local tax rates.) This rate swap is due to
actions by the 2007 session of the General Assembly authorizing the state to take over the local
41
government portion of Medicaid expenses. Local governments are allowed one of two additional
taxing options to make-up the revenue loss. Note: Only the state rate is recorded in this section.
The Local Government Sales and Use Tax is made up of three separate rates defined in Article
39, Article 40, Article 42, Article 44, and Article 46 of Chapter 105 of the North Carolina
General Statutes. Mecklenburg County collects an additional .5 cent on the local option sales and
use tax. (Article 43 of Chapter 105) The revenue from this tax is used for public transportation.
For additional information, see the Local Government section of this publication.
The gross receipts from the lease or rental of tangible personal property, services such as the
rental of certain lodging accommodations, cleaning services provided by dry cleaners and similar
types of businesses are subject to the state rate.
REDUCED BASES AND RATES
{G.S. 105-187.5(b) & G.S. 105-187.9(a)} The gross receipts from the long-term rental or leases
of motor vehicles are subject to the 3% highway use tax, and collections are credited to the
Highway Trust Fund. Short-term leases of motor vehicles (less than 365 continuous days) are
subject to the 8% rate and credited to the General Fund. For additional information on the
Highway Use Tax, see the Highway Trust Fund section of this publication.
{G.S. 105-164.4(a)(1a)} Manufactured housing sold at retail is taxed at a 2% state rate with a
maximum tax or cap of $300.00.
{G.S. 105-164.4(8)} The tax rate on modular homes is 2.5% of the retail price.
{G.S. 105-164.4(a)(1b)} A 3% rate of the state sales tax is levied on the retail price of new and
used aircraft, and boats, with a maximum levy of $1,500.
{G.S. 105-164.4(a)(1f)} The sale of electricity to commercial laundries is taxed at 2.83%.
{G.S. 105-164.4(a)(1j)} Electricity sold to manufacturing industries and manufacturing plants
for use in connection with the operations of the industry or plant is taxed at 1.8%. The rate is
reduced to 1.4% effective July 1, 2008. The tax rate on this class of taxpayer is further reduced to
.8% effective July 1, 2009 and repealed effective July 1, 2010.
{G.S. 105-164.4C} Telecommunication services, cable services, and satellite services (including
satellite radio services and voice mail) are subject to the general state rate.
{G.S. 105-164.4(a)(4c)} The combined general sales and use tax rate applies to the gross receipts
from telecommunication services.
{G.S. 105-164.44F (a)} Municipalities receive 19.42% of the gross receipts from
telecommunication service provided within municipal jurisdictions. Counties and cities share in
an additional 8% of the gross receipts from telecommunication services provided statewide.
42
{G.S. 105-164.4(a)(6)} Cable service providers, direct-to-home satellite providers, and any other
person or business providing video programming is considered a retailer, and the gross receipt
from the sale of such services is subject to the general sales and use tax rate. Cities and counties
share in 25% of the net proceeds from video programming services and 37.5% of the net
proceeds from direct-to-home satellite services {G.S. 105-164.44I}.
{G.S. 105-164.4 (4a)} Gross receipts derived by a utility from the sale of electricity are subject
to the state sales tax of 3%, in addition to the 3.22% rate {G.S. 105-116} of tax imposed under
the franchise tax schedule {G.S. 105-116.1}. Municipalities receive 3.09% of the franchise tax
from the sale of electricity within the municipal boundary.
{G.S. 105-164.13B} Food Exempt from Sale Tax
Food is exempt from the sales tax unless it is sold through a vending machine. Prepared food,
soft drinks, candy, and dietary supplements are subject to the sales tax. These items are still
subject to the local government sales tax.
{G.S. 105-164.13C} Sales and Use Tax Holiday
Enacted in 2002, the sales tax holiday extends for three days beginning on the first Friday in
August and extending through Sunday. The exemption is extended to clothing, school supplies,
sport and recreational equipment, computers, and educational software. There is a $100 cap per
item of clothing and school supplies, a $50 cap per item of sport or recreational equipment, and a
$3,500 cap per computer. Computer supplies with a sales price of $250.00 or less are exempt,
beginning with the 2006 holiday.
{G.S. 105-164.13} Sales and Use Tax Exemptions and Exclusions
The federal government and the North Carolina Department of Transportation are exempt from
state and local sales and use taxes. Many items, such as prescription medicine and certain
medical devices, are exempt from the tax. Due to actions of the North Carolina General
Assembly during the 2005 Legislative Session, many of the items taxed at 1% with an $80.00
cap are now exempt from the State Sales and Use Tax.
{G.S. 105-164.14} Certain Refunds Authorized
Currently, state government agencies receive a refund of local sales and use taxes paid on their
direct purchases for use. Effective July 1, 2004, sales to state agencies are exempt from sales or
use tax if the state agency making the purchase furnishes a tax exemption number to the seller.
Certain governmental entities, as defined by statute, may obtain refunds, as well as hospitals,
educational institutions, churches, orphanages, and charitable and religious institutions not
operating for a profit, and certain homes for the aged, sick, or infirm.
DISTRIBUTION
Revenue is deposited in the General Fund for general purposes, except for a small amount
dedicated to the Wildlife Resource Fund. Sixty percent of the state sales tax on dry cleaning and
laundry services is dedicated to the Dry Cleaning Solvent Cleanup Fund. The sales and use tax,
collected from taxable food items, is distributed to local governments. For additional
information, see the Local Government section of this publication.
43
TAX CALENDAR
{G.S.105-164.16} For merchants with a monthly sales and use tax liability of at least $100, but
less than $10,000, taxes are due monthly by the fifteenth of each month on sales that took place
the previous month. Businesses with monthly sales and use tax liabilities of $10,000 or more are
required to remit twice a month. One semimonthly payment covers the period of the month from
the first through the fifteenth. The second payment covers the period of the month from the
sixteenth through the end of the month. Persons who consistently owe sales or use taxes of less
than $100 per month may file reports quarterly by the last day of the month following the end of
the quarter.
COMPARISON WITH OTHER STATES
As of January 2010, forty-five states levy sales and use taxes. State sales tax rates range from
2.9% to 8.25%, with a median rate of 5.75%. (Comparisons are made without any effective
temporary rates.) The state sale tax rate for North Carolina is 5.75%. There are twenty four
states with a higher state sales tax rate and twenty states with a lower rate than North Carolina.
North Carolina ranks forth among the southeastern states (1), and eighth among the eleven most
populated states (2).
(1) Georgia, Kentucky, North Carolina, South Carolina, Tennessee, Virginia
(2) California, Florida, Georgia, Illinois, Michigan, New Jersey, New York, North
Carolina, Ohio, Pennsylvania, Texas
Source: Federation of Tax Administrators, “State Excise Tax Rate on Cigarette, January 2010”,
Washington, DC. February 2010.
PART III
HIGHWAY FUND TAXES
46
47
HIGHWAY FUND
Highway Fund revenue is primarily used to maintain the state’s 79,262 miles of public roads,
and to fund the administrative operations of the Department of Transportation and its many
Divisions, including the Division of Motor Vehicles. In addition, the Fund supports the
Department’s commitment to a multi-modal transportation network encompassing public
transportation, aviation, rail, ferries, and bicycle and pedestrian programs. Highway Fund
revenue is also used to provide supplemental funding for secondary road construction and
provide aid to municipalities for Powell Bill road maintenance.
The Highway Fund receives support from three primary revenue sources. The first is the excise
tax on motor fuels, of which the Highway Fund receives 75%. The second source of revenue is
licenses and fees collected by the Division of Motor Vehicles, and the third source is from
interest earned on cash balances held by the state treasurer.
Each summary outlines the subject being taxed, the tax rate or rates, total collections, any
distributions made from the collections, and any exemptions. A comparison with similar taxes
from other states is made for most schedules and is updated as often as national data is available.
48
Motor Fuels $ 1,145,528,928
Truck Plates 128,136,502
Staggered Registration 189,076,290
Driver License 126,530,919
IRP 58,684,032
Other Fees & Interest 83,687,212
Total $ 1,731,643,883
Chart 4
North Carolina Highway Fund Tax Collections
2009-10
Staggered
Registration
11%
Motor Fuels
66%
Truck Plates
7%
Driver License
7%
IRP
3%
Other Fees &
Interest
5%
49
DEALER AND MANUFACTURER LICENSE FEES
Individuals, firms, and corporations that engage in the sale of new, used, and newly
manufactured vehicles must obtain a license from the Division of Motor Vehicles.
ADMINISTERED BY
Department of Transportation Division of Motor Vehicles
Table 20
Highway Fund Dealer and Manufacturer License Fee Collections
Annual Percent of
Highway Fund Percent Highway Fund Tax
Fiscal Year Collections Change Collections
2000-01 1,145,552 -20.9 0.1
2001-02 1,078,075 -5.9 .01
2002-03 1,104,651 2.5 .01
2003-04 1,071,555 -3.0 .01
2004-05 1,051,171 -2.0 .01
2005-06 1,272,243 21.0 0.1
2006-07 760,763 -40.0 .004
2007-08 1,032,180 36.0 0.1
2008-09 927,018 -10.0 0.1
2009-10 1,072,841 16.0 0.1
BASE AND RATE
{G.S. 20-289} Annual license fees are levied on motor vehicle manufacturers, dealers,
distributors, distributor branches, wholesalers, and salesmen at the following rates:
1. Motor vehicle dealers, distributors, distributor branches, and wholesalers, $70.00 for each
principal place of business
2. Manufacturers, $150.00, and for each factory branch, $100.00
3. Motor vehicle sales representatives, $15.00
4. Factory and distributor representatives, $15.00
{G.S. 20-291} If a representative changes employers, the fee for the issuance of a license stating
the name of a new employer is $10.00.
{G.S. 20-287} A manufacturer, factory branch, distributor, and distributor branch may operate
without obtaining a motor vehicle dealer’s license.
DISTRIBUTION
Revenue is deposited in the Highway Fund for highway purposes.
50
TAX CALENDAR
{G.S 20-288} All licenses are granted for a period of one year unless suspended or revoked.
COMPARISON WITH OTHER STATES
A comparison with other states was not taken.
51
DRIVER’S LICENSE FEES
In order to operate a motor vehicle on public roads, a person must be at least 16 years of age and
be licensed by the Division of Motor Vehicles. Persons under the age of 16 can operate a motor
vehicle on public roads under limited circumstances.
ADMINISTERED BY
Department of Transportation Division of Motor Vehicles
Table 21
Highway Fund Driver’s License Fee Collections
Annual Percent of
Highway Fund Percent Highway Fund
Fiscal Year Collections Change Tax Collections
2000-01 66,172,057 12.3 5.3
2001-02 68,941,464 4.2 5.4
2002-03 70,463,916 2.2 5.7
2003-04 74,839,528 6.2 5.5
2004-05 79,370,033 6.1 5.7
2005-06 110,492,674 39.2 6.6
2006-07 125,922,739 14.0 7.0
2007-08 133,330,676 6.0 7.5
2008-09 129,657,974 -3.0 7.6
2009-10 126,530,919 -2.4 7.4
Note: Increase in fees effective October 2005; partial year collections FY 2005-06
BASE AND RATES
{G.S. 20-11} Limited Learners Permit and Provisional Licenses
Individuals under the age of 18 are required to have both instruction and experience before
receiving a basic operator’s license. In addition to successfully completing a prescribed driver
training course under G.S. 20-88.1, a driver is allowed limited driving privileges. Note: Only the
highlights are listed below. For additional driving limitations by level, see G.S. 20-11.
Level I – Limited Learner’s Permit
The individual must be 15 years old and is restricted to driving under supervision. For
the first six months, level I drivers can only drive between the hours of 5:00 a.m. and
9:00 p.m.
Level II – Limited Provisional License
The individual must have held a limited learner’s permit for 12 months and be 16 years
old. The driver may drive without supervision under certain limitations regarding time of
day and the number of occupants in the vehicle.
52
Level III – Full Provisional License (Class C)
The individual must be 16 years old and have held a limited provisional license for at
least six months, have a driving eligibility certificate or a high school diploma, and have
never been convicted of a motor vehicle moving violation.
Minimum Age Requirements for Licensure:
1. {G.S. 20-9} Classes of regular licenses, Class A-18, Class B-18, Class C -16.
2. {G.S. 20-10} Public passenger carrying vehicles, same as classes A & B.
3. {G.S. 20-11} Issuance of limited learners permit is 15 years of age.
4. {G.S. 20-37.13} Commercial drivers must be 21 years old and a resident of the state.
{G.S. 20-7(i) & G.S. 20-37.16 (d)} Classes of Driver’s Licenses A, B, & C
1. Learners permit; issued for 18 months is $15.00
2. The basic operator’s license; class C is issued for a fee of $4.00 per year
3. Chauffeurs licenses; classes A and B are issued for a fee of $4.00 per year
4. Commercial licenses; classes A, B, and C are issued for a fee of $15.00 per year
License Renewal Periods
Under the age of 18 – A license expires on the 21st birthday.
Between the ages of 18 and 65 – A license expires eight years after the date of issuance.
At least 66 years old – A license expires five years after the date of issuance.
In order to operate a motorcycle on the roadways of the state, an operator must have a Class C
driver’s license and a motorcycle endorsement. The fee for a motorcycle endorsement is $1.75
cents per year.
Commercial Driver Licenses (CDL)
{G.S. 20-37.13} The fee for a commercial driver’s license permit is $15.00 per year.
{G.S. 20-37.15(a1)} Application fee for a commercial driver’s license is $30.00 per year.
{G.S. 20-37.16(d)} Commercial driver’s license is $15.00 per year.
{G.S. 20-37.16(d)} The commercial endorsement fee is $3.00 per year.
In addition, the following fees apply:
1. {G.S.20-14} Duplicate license is $15.00.
2. {G.S. 20-26(e)} Limited and complete, exact copy(s) of license is $8.00 per year.
3. {G.S. 20-26(e)} Certified true copy of complete license record is $11.00 per year.
4. {G.S. 20-37.7(d)} Special ID cards for non-drivers aged 16 and over are $15.00 per year.
5. {G.S. 20-7(i1)} Restoration fee to restore a license after revocation is $50 and $75 if
revoked for driving under the influence. A charge of $50 applies for failure to surrender
a revoked driver's license.
6. {G.S. 20-16(e)} Driver improvement clinic is $50.
DISTRIBUTION
All revenue collected from licenses and fees is deposited in the Highway Fund for highway
purposes, except $25 of the $75 license restoration fee. Revenue collected for the restoration of a
license revoked for driving under the influence is split between the Highway Fund and the
53
General Fund. The $50 license restoration fee and $50 of the $75 restoration fee for driving
while impaired are deposited in the Highway Fund. Twenty five dollars ($25) of the seventy five
dollar fee ($75) is deposited in the General Fund for the Center for Alcohol Studies Endowment.
Five cents from the issuance of each driver’s license and duplicate license is credited to the
License to Give Trust Fund, an online organ donor program. Some of the revenue collected
under the Special ID Cards is used to offset DMV operating expenses.
TAX CALENDAR
License fees and other charges are due at the time of purchase of the license or service.
COMPARISON WITH OTHER STATES
North Carolina's driver's license tax is a multifaceted levy consisting of several components.
Comparative information was only obtained on operator's license fees. All 50 states levy
operator's license fees. Operator's licenses are typically for a four-year period, with only a
handful of states (including North Carolina) having a different license period. Converting these
license fees to an annual basis, rates ranged from $1.46 to $16.89. The average fee in the nation
is $6.43. North Carolina's annual fee is $6.69. Thirteen states had a higher levy than North
Carolina. North Carolina has the highest rate of the southeastern states (1). Of the most populated
states, North Carolina ranked third(2).
Table 22
Distribution of Driver’s License Fees
2010
Fees Number of
States
$1.00 - $1.99 1
2.00 - 2.99 8
3.00 - 3.99 2
4.00 - 4.99 1
5.00 and Above 38
(1) Georgia, Kentucky, North Carolina, South Carolina, Tennessee, and Virginia.
(2) California, Georgia, Florida, Illinois, Michigan, Ohio, Pennsylvania, New Jersey,
New York, North Carolina, Texas.
Source: Department of Transportation, Highway Taxes and Fees 2008, U.S. Federal Highway
Administration, Washington, D.C., January 2010.
54
FINANCIAL SECURITY RESTORATION FEES
Owners of a registered motor vehicle, operating on the roads of this state, must maintain
financial responsibility through liability insurance coverage on each vehicle throughout the
period of registration. When liability coverage lapses and the registration is restored, the owner is
charged a civil penalty.
ADMINISTERED BY
Department of Transportation Division of Motor Vehicles
Table 23
Highway Fund Financial Security Restoration Fee Collections
Annual Percent of
Highway Fund Percent Highway Fund Tax
Fiscal Year Collections Change Collections
2000-01 10,263,535 21.5 0.8
2001-02 12,716,831 24.0 1.0
2002-03 14,479,061 14.0 1.2
2003-04 15,068,442 4.1 1.1
2004-05 4,764,996 -68.4 0.3
2005-06 5,540,080 16.3 0.3
2006-07 5,483,096 -1.0 0.3
2007-08 5,542,880 1.1 0.3
2008-09 5,525,979 -0.3 0.3
2009-10 5,497,624 -0.5 0.3
BASE AND RATE
{G.S. 20-309} When notice of a lapse of insurance is received by the Division of Motor
Vehicles, the owner is given 10 days to certify to the Division that the vehicle was covered for
liability purposes on or prior to the effective date of such termination. In the case of lapsed
liability insurance coverage, in order for the owner to restore the registration, the owner must
certify to the Division that the vehicle is covered for liability insurance purposes and pay to the
Division a civil penalty of $50.00.
DISTRIBUTION
Revenue is deposited in the Highway Fund for highway purposes.
TAX CALENDAR
Payment is made at the time of restoration.
55
COMPARISON WITH OTHER STATES
Most states require the owner of a motor vehicle to prove financial responsibility for the
operations of a vehicle on public road ways. While similar, penalties vary widely with regard to
the type and amount of financial responsibility.
Source: Department of Transportation, Highway Taxes and Fees, U.S. Federal Highway
Administration, Washington, D.C., October 2010.
56
GASOLINE INSPECTION TAX
Petroleum products and related substitutes used in heating and power generation are subject to
inspection. The purpose of the inspection tax is to ensure the quality of the products being sold to
the public and to prevent reprehensible practices.
ADMINISTERED BY
Department of Revenue
Department of Agriculture
Table 24
Highway Fund Gasoline Inspection Tax Collections
Annual Percent of
Highway Fund Percent Highway Fund Tax
Fiscal Year Collections Change Collections
2000-01 12,803,620 4.3 1.0
2001-02 12,938,330 1.1 1.0
2002-03 13,450,770 4.0 1.1
2003-04 13,881,390 3.2 1.0
2004-05 15,195,902 9.5 1.1
2005-06 14,577,283 -4.1 1.0
2006-07 14,907,956 2.3 1.0
2007-08 14,200,122 -5.0 0.8
2008-09 13,674,635 -4.0 0.8
2009-10 14,105,867 3.2 0.8
BASE AND RATE
{G.S. 119-18(a)} An inspection tax of one fourth of one cent (1/4 of 1¢) per gallon is levied on
all petroleum products used as fuels. This includes gasoline, diesel, blended fuels, alternative
fuels, kerosene, and fuels exempt from the excise tax on motor fuels. Aviation fuels are also
subject to the inspections tax. (For additional information on motor fuel taxation, see Articles
36C and 36D of Chapter 105 of the North Carolina General Statutes.)
DISTRIBUTION
The revenue from the gasoline inspection tax is used to fund the administration and enforcement
of the tax by the Departments of Revenue and Agriculture under Articles 36C and 36D of
Chapter 105. The balance of the revenue is credited on a monthly basis to the Commercial
Leaking Petroleum Underground Storage Tank Cleanup Fund and the Noncommercial Leaking
Petroleum Underground Storage Tank Cleanup Fund. If the amount of revenue in the
Noncommercial Fund at the end of a month is at least five million dollars ($5,000,000), one-half
of the remainder of the proceeds shall be credited to the Noncommercial Fund and one-half of
the remainder of the proceeds shall be credited to the Commercial Fund.
57
TAX CALENDAR
{G.S. 119-18(a)} The inspection tax on motor fuel is due and payable to the Secretary of
Revenue at the same time as the excise tax on motor fuel is due. (See G.S. 105-449.90) The
inspection tax on alternative fuels is due monthly within 25 days after the end of the month. The
inspection tax on kerosene is payable monthly to the Secretary by the supplier. Monthly reports
on kerosene are due by the 22nd of each month, and apply to sales during the preceding month.
COMPARISON WITH OTHER STATES
As of January 2008, thirty seven states inspect some or all petroleum products. Fifteen states
impose either a fee or a tax on one or all of the products that are inspected. However, in most
taxing states the set of petroleum products taxed is different and the unit of measure, upon which
a tax is applied, can differ between states.
Source: Department of Transportation, Highway Taxes and Fees 2008, U.S. Federal Highway
Administration, Washington, D.C., January 2008.
58
INTERNATIONAL REGISTRATION PLAN
The International Registration Plan is a reciprocity agreement for motor carriers in the U.S.,
District of Columbia, and Canada. The Plan is a federally encouraged program to facilitate
commercial vehicle registrations and operations among the states and Canadian Providences.
ADMINISTERED BY
Department of Transportation Division of Motor Vehicles
Table 25
Highway Fund International Registration Plan Collections
Annual Percent of
Highway Fund Percent Highway Fund Tax
Fiscal Year Collections Change Collections
2000-01 47,494,993 -13.2 3.8
2001-02 49,909,132 5.1 4.0
2002-03 45,039,506 -10.0 4.0
2003-04 47,623,500 5.74 4.0
2004-05 49,789,517 5.0 4.0
2005-06 66,013,231 32.6 4.0
2006-07 68,385,177 3.6 4.0
2007-08 65,105,480 -5.0 4.0
2008-09 62,065,670 -5.0 4.0
2009-10 58,684,032 -5.5 3.4
BASE AND RATE
{G.S. 20-87.1} North Carolina has participated in the International Registration Plan (IRP) since
1977. The IRP is the registration reciprocity compact among states, the District of Columbia,
and Canadian Provinces. Vehicles licensed under the International Registration Plan are owned
and operated by registrants of member jurisdictions. Registered vehicles are known as apportion
vehicles and pay license fees based on fleet distance operated in member jurisdictions.
Registered fleets are granted full intrastate and/or interstate reciprocity and require the issuance
of one plate and one cab card per fleet vehicle. The Plan defines a fleet vehicle as one or more
apportionable vehicles.
The weight and rate schedule under this plan follows:
59
Table 26
Schedule of Weights and Rates
(Per 100 lbs. of Gross Weight)
Weight/Rate
Bracket
Farm Non-
Farm
Up to 4,000 lbs. $.29 $.59
4,001 to 9,000 lbs. .40 .81
9,001 to 13,000 lbs. .50 1.00
13,001 to 17,000 lbs. .68 1.36
Over 17,000 lbs. .77 1.54
Vehicles in the “over 17,000” pounds category pay an additional tax of $3.00. Replacement
plates for all vehicles are $9.
{G.S. 20-385} ADDITIONAL FEES FOR INTERSTATE MOTOR CARRIERS
1. Insurance verification for each for-hire motor carrier operated in the state, $1.00.
2. Application by interstate motor carrier for certificate of exemption, $45.00.
3. Certification by an interstate motor carrier that is not regulated by the U.S. Department
of Transportation, $45.00.
4. Emergency permits for interstate motor carrier, $18.00.
DISTRIBUTION
Revenue is deposited in the Highway Fund for highway purposes.
TAX CALENDAR
License fees are computed according to the percentage of miles driven in each jurisdiction for
the preceding fiscal year beginning on the first of July. Effective October 2005 for the 2006
registration year, the annual renewal period for the purchase of plates is staggered.
COMPARISON WITH OTHER STATES
Ten Canadian provinces and 48 contiguous states participate in the International Registration
Plan (IRP). For the 48 states that are in the IRP (for five axle tractor trailers) the registration fees
are determined according to the weight of the vehicle and the percentage of distance driven in
each jurisdiction (participating state) for the preceding year. Because of the manner in which the
fees are calculated, it is difficult to compare them across states.
Source: Department of Transportation, Highway Taxes and Fees 2008, U.S. Federal Highway
Administration, Washington, D.C., January 2008.
60
MOTOR FUELS EXCISE TAX
The state levies an excise tax on all motor fuels including alternative motor fuels sold,
distributed, and used to power motor vehicles operating on public roads of the state. The
revenue collected from the tax is split between the Highway Fund and the Highway Trust Fund.
The Highway Fund portion is 75% of collections.
ADMINISTERED BY
Department of Revenue
Department of Transportation Division of Motor Vehicles
Table 27
Highway Fund Motor Fuel Excise Tax Collections
Annual Percent of
Highway Fund Percent Highway Fund
Fiscal Year Tax Collections Change Tax Collections
2000-01 867,815,163 11.1 69.7
2001-02 888,128,994 2.3 69.3
2002-03 848,372,049 -4.5 68.3
2003-04 935,531,825 10.3 69.3
2004-05 956,651,016 2.6 68.5
2005-06 1,100,801,379 14.5 66.0
2006-07 1,186,563,036 7.8 66.0
2007-08 1,168,720,744 -1.5 65.0
2008-09 1,114,992,201 -5.0 65.0
2009-10 1,145,528,928 4.0 67.0
BASE AND RATE
{G.S. 105-449.80} The motor fuels excise tax is levied on the wholesale price of motor fuel. The
excise tax has a fixed rate of 17.5 cents per gallon plus a variable component rate that is 7% of
the average wholesale price of motor fuels. The excise tax on motor fuels is computed and set
twice a year in January and July and cannot fall below 3.5 cents per gallon.
State Rate
Base period: January 1, 2010 base rate cannot fall below .299 cents/gal
July 1, 2010 base rate is cannot fall below .299 cents/gal
Effective Rate: January 1, 2010 actual tax rate .325 cents/gal
July 1, 2010 actual tax rate .319 cent/gal
Note: By actions of the 2009 General Assembly, A tax rate floor of .299 cents per gallon will be
in affective until July 1, 2011.
61
Federal Rate
Effective Date: October 1, 1997 tax rate gasoline .184 cents
Effective Date: October 1, 1997 tax rate diesel .244 cents
BASE PERIOD
The first base period is the six months ending on the 30th of September. The second base period
is the six months ending on the 31st of March.
January Base Period = April, May, June, July, August, September
6
July Base Period = October, November, December, January, February, March
6
Computation of the Wholesale Component for the base period:
a. Compute the 6 month average sales price of “finished” gasoline
b. Compute the 6 month average sales price of #2 diesel fuel
c. Compute the weighted average of the results of the first two calculations based on the
proportion of the tax collected on gas and diesel.
Gas Weighted Average = Total Taxable Gallons Gas
Gas Taxable Gallons
Diesel Weighted Average = Total Taxable Gallons Diesel
Diesel/Special Fuel Taxable Gallons
d. Sum the weighted averages and multiply times 7%
e. Round up to the nearest 1/10 of a cent
EXEMPTIONS
{G.S 105-449.88} Fuel sold to the U.S. Government, state government agencies, N.C. counties
or municipal corporations, N.C. community colleges, local boards of education for use in public
or charter school transportation (including fuel for automobiles owned by school boards), and
motor fuel removed from a terminal for export for which the supplier collects the excise tax at
the rate of the destination state is exempt from this tax. Diesel that is kerosene sold to an airport
is exempt from the tax.
QUARTERLY REFUNDS
{G.S. 105-449.106} A refund of the excise tax paid less one cent per gallon is given to the
following: volunteer fire departments, sheltered workshops recognized and approved by the
Department of Human Resources, volunteer rescue squads, taxicabs transporting fare-paying
passengers, private nonprofit organizations operating motor vehicles under contract or at the
express designation of a unit of local government, and off-highway use of special mobile
equipment.
62
ANNUAL REFUNDS
{G.S. 105-449.107} A refund of the average excise tax paid is given for purchases of fuel not
used on the highway. The refund is based on the excise tax paid on fuel used in the preceding
calendar year. There is a refund of 33 1/3% of the average tax paid on fuel used in concrete
mixing vehicles, solid waste compacting vehicles, commercial vehicles that deliver and spread
mulch, soil and similar materials, and certain agricultural and tank delivery vehicles.
DISTRIBUTIONS
{G.S. 105-449.125} Of the tax collected, 1/2 cent per gallon is dedicated as follows:
1. Commercial Leaking Petroleum Underground Storage Tank Cleanup Fund, 19/32
2. Noncommercial Leaking Petroleum Underground Storage Tank Cleanup Fund, 3/32
3. Water and Air Quality Account, 5/16.
Of the remaining revenue, 75% remains in the Highway Fund, and 25% is allocated to the
Highway Trust Fund. All motor fuel tax collections credited to the Highway Trust Fund are used
for highway construction. Only Highway Fund revenue is shown above.
ADDITIONAL DISTRIBUTION
{G.S. 105-449.126} The Wildlife Resources Fund receives 1/6 of 1% of the excise tax on motor
fuels that is allocated to the Highway Fund. The revenues received under this distribution are
annual and are used for boating and water safety activities.
POWELL BILL DISTRIBUTION
{G.S. 136-41.1} In October of each year, one and three fourths cents (1 ¾) of the net tax on each
gallon of motor fuel and alternative fuels sold or distributed in the state is appropriated from the
Highway Fund. This appropriation is made to eligible cities and towns for street maintenance.
The funds appropriated from the Highway Fund are based on collections during the fiscal year
preceding the distribution date. Seventy five percent (75%) is distributed based on population
and twenty five percent (25%) is distributed based on public road mileage.
TAX CALENDAR
{G.S. 105-449.90} The motor fuels excise tax is collected by wholesale distributors of motor
fuels on purchases made from major oil companies at the terminal rack. The excise tax collected
on motor fuels is paid to the Secretary of Revenue either annually, quarterly, or monthly.
Annual returns are due 45 days after the end of the calendar year. Quarterly returns are due by
the last day of the month that follows the end of the calendar quarter. Monthly returns are due
within 22 days after the end of the month. A monthly return of an occasional importer is due by
the third day of each month.
COMPARISON WITH OTHER STATES
All states levy motor fuel taxes on gasoline, diesel fuel, and gasohol. In addition, several states
have different levies on jet and other fuels. Sales taxes are applied on motor fuels in addition to
the excise tax in some states, and separate local motor fuel taxes are applied in selected
jurisdictions in several states.
63
As of January 2010, state excise taxes on gasoline ranged from 4.0 cents per gallon to 37.5 cents
per gallon. The average state gasoline tax was 18.3 cents per gallon. For comparison, North
Carolina's rate was 30.30 cents per gallon, and was the third highest tax in the nation. The
average motor fuels tax in the southeastern states was 18.3 cents per gallon, and the average for
the eleven most populated states was 16.03 cents per gallon. North Carolina had the highest tax
rate among the southeastern states and among the eleven most populated states. North Carolina
is one of seven states that have a variable motor fuel excise tax rate.
Table 28
Gasoline Excise Tax Rates for the U.S., North Carolina
and Surrounding States
January 2010
State Tax Rate
Cents/gal
United States 18.3
Southeast 19.0
Eleven Largest States 16.03
North Carolina 30.30
Surrounding States
Georgia 7.50
Kentucky 22.70
North Carolina 30.30
South Carolina 16.00
Tennessee 20.00
Virginia 17.50
Source: Federation of Tax Administrators, “State Motor Fuel Tax Rates, January 1, 2010”,
Washington, DC. March 2010.
64
OVERWEIGHT/OVERSIZE PERMITS
Vehicles that exceed the state’s maximum size and weight standards to move or operate on
public roads may apply for and be issued an overweight and oversize permit. Generally, such
permitting applies to the movement of construction vehicles and mobile and modular homes.
ADMINISTERED BY
Department of Transportation Division of Motor Vehicles
Table 29
Highway Fund Overweight/Oversize Permit Collections
Annual Percent of
Highway Fund Percent Highway Fund Tax
Fiscal Year Collections Change Collections
2000-01 5,261,816 111.5 0.4
2001-02 6,359,366 21.0 0.5
2002-03 5,024,634 -21.0 0.4
2003-04 3,444,149 -31.5 0.3
2004-05 7,349,815 113.4 0.5
2005-06 6,649,860 -9.5 0.4
2006-07 6,754,596 2.0 0.4
2007-08 6,625,951 -2.0 0.4
2008-09 5,755,377 -13.0 0.3
2009-10 5,268,905 -8.5 0.3
BASE AND RATE
{G.S. 20-119} Upon receipt of application, the state may issue, at its discretion, special permits
granting permission to operate overweight/oversize motor vehicles on North Carolina highways.
The single trip permit fee for oversize vehicles is $12.00 for each dimension over the lawful
dimensions including height, length, width, and weight up to 132,000 pounds. The single trip
permit for overweight vehicles is $3.00 per 1,000 pounds over 132,000 pounds. The annual
permit fee for moving house trailers is $200.00 and for other commodities is $100.00. The
application fee for a permit that requires an engineering study for pavement or structures is
$100.00.
DISTRIBUTION
Revenue is deposited in the Highway Fund for highway purposes.
TAX CALENDAR
Revenue is received at the time the permit is issued.
COMPARISON WITH OTHER STATES
A comparison is hard to make between states. Most states levy penalties for violation of size and
weight limits. However, penalties by axle weight are not uniform across all states.
65
PENALTIES
The state sets standards for the size and loads of vehicles operating on public roads. When the
maximum standards are violated, and no special use permit has been issued, the owner and/or
operator can be charged a penalty.
ADMINISTERED BY
Department of Transportation Division of Motor Vehicles
Table 30
Highway Fund Overweight/Oversize Permit Collections
Annual Percent of
Highway Fund Percent Highway Fund Tax
Fiscal Year Collections Change Collections
2000-01 13,263,785 56.9 1.1
2001-02 15,300,462 15.4 1.2
2002-03 16,003,526 5.0 1.3
2003-04 18,366,061 15.0 1.4
2004-05 34,262,047 86.6 2.4
2005-06 35,522,264 3.7 2.0
2006-07 38,969,065 9.7 2.2
2007-08 41,815,227 7.3 2.3
2008-09 34,780,948 -17.0 2.0
2009-10 28,638,488 -18.0 2.0
BASE AND RATE
{G.S. 20-118} This statute lists the maximum weight by axle group.
{G.S 20-118(e) (3)} For each violation of the license, permit, or axle grouping weight as
established in {G.S. 20-118 (b) (3)}, the owner must pay to the Division of Motor Vehicles, a
penalty, per violation, as listed in the following table.
Table 31
Violation by Weight
Amount of Pounds Penalty Per
Over Maximum Pound
First 2000 lbs. 2 cents
Second 3000 lbs. 4 cents
In excess of 5000 lbs. 10 cents
{G.S. 20-118(e) (1)} For each violation of axle weight as established by G.S. 20-118 (b)(1),
(b)(2), and (B)(4) the owner must pay the Division of Motor Vehicles a penalty, per violation, as
listed in the following table. (See statute for further explanation.)
66
Table 32
Violation by Single or Tandem Axle
Amount of Pounds Penalty Per
Over Maximum Pound
First 1000 lbs. 4 cents
Second 1000 lbs. 6 cents
In excess of 2000 lbs. 10 cents
Note: The violations listed are a representation of the penalties levied by type of fine. For a
complete listing please see the Motor Vehicle Laws of North Carolina.
DISTRIBUTION
Revenue is deposited in the Highway Fund for highway purposes.
TAX CALENDAR
Payments are due at the time the penalty is issued.
COMPARISON WITH OTHER STATES
A comparison is hard to make between states. Most states levy penalties for violation of size and
weight limits. However, penalties by axle weight are not uniform across all states.
67
REGISTRATION FEES
Fees are charged for certificates of title, registration cards (including special identification cards),
and certain registration plates for motor vehicles.
ADMINISTERED BY
Department of Transportation Division of Motor Vehicles
Table 33
Highway Fund Overweight/Oversize Permit Collections
Annual Percent of
Highway Fund Percent Highway Fund Tax
Fiscal Year Collections Change Collections
2000-01 2,594,868 -3.5 0.2
2001-02 2,585,980 -0.3 0.2
2002-03 2,595,095 0.4 0.2
2003-04 2,786,678 7.4 0.2
2004-05 2,743,180 -1.6 0.2
2005-06 3,656,707 33.3 0.2
2006-07 3,956,385 8.2 0.2
2007-08 3,839,311 -3.0 0.2
2008-09 3,516,181 -8.4 0.2
2009-10 3,444,812 -2.0 0.2
BASE AND RATE
Charges are rendered for the following items:
{G.S. 20-37.7} $15.00 for the issuance of a special identification card
{G.S. 20-85} $40.00 certificate of title application
$15.00 to issue, duplicate, repossess a certificate of title
$15.00 to transfer, replace, duplicate registration card and plates
$15.00 to apply for and remove a lien from a certificate of title
$15.00 for each salvage certificate of title
$25.00 for each set of replacement Stock Car Racing Theme Plate
{G.S. 20-73(c)} $15.00 fee for failure to transfer title of ownership
{G.S. 20-42(b)} $10.00 fee to certify any DMV document for use in court
$5.00 for each accident report
DISTRIBUTION
Legislative changes in 1989 did not identify some of these fees as Highway Trust Fund
Revenues. The revenue collected from these fees is credited to the Highway Fund for general
68
highway purposes. Some of the revenue from the issuance of special ID cards is used to off-set
DMV operating expenses.
TAX CALENDAR
These fees are collected on a daily basis.
COMPARISON WITH OTHER STATES
A comparison with other states was not taken.
69
SAFETY EQUIPMENT PROCESS FEES
All motor vehicles subject to registration by the Division of Motor Vehicles are required to pass
an annual safety inspection. Vehicles registered in certain counties are required to pass both a
safety and an emission inspection.
ADMINISTERED BY
Department of Transportation Division of Motor Vehicles
Table 34
Highway Fund Safety Equipment Processing Fee Collections
Annual Percent of
Highway Fund Percent Highway Fund Tax
Fiscal Year Collections Change Collections
2000-01 4,010,440 -5.8 0.3
2001-02 4,024,782 0.4 0.3
2002-03 4,264,217 6.0 0.3
2003-04 4,421,842 4.0 0.3
2004-05 4,553,823 3.0 0.3
2005-06 4,883,720 7.2 0.3
2006-07 4,552,026 -7.0 0.3
2007-08 4,416,353 -3.0 0.2
2008-09 3,776,184 -15.0 0.2
2009-10 3,579,618 -5.2 0.2
BASE AND RATE
{G.S. 20-183.7} The safety equipment inspection fees total $9.10 per vehicle inspected. Of that
amount, $8.25 is for the inspection and remains with the inspection station. The remaining $0.85
is for the inspection sticker, with $0.55 going to the Highway Fund, $0.18 earmarked to the
Department of Insurance for the Volunteer Rescue/EMS Fund, and $0.12 dedicated to the
Rescue Squad Workers’ Relief Fund.
The inspection fee for inspecting both safety and exhaust standards is $30.00 per vehicle. Of that
amount, $23.50 is for the inspection and remains with the inspection station. The remaining
$6.50 is for the inspection sticker. Of this amount, $3.00 goes to the emission program account,
$1.75 goes to the telecommunications account, $0.65 is allocated to the Division of Air Quality,
$0.55 goes to the Highway Fund, $0.25 goes to the Highway Trust Fund Repayment Fees, $0.18
is distributed to the Department of Insurance for the Volunteer Rescue/EMS Fund, and $0.12 for
the Rescue Squad Relief Fund.
Note: Effective July 1, 2007, the distribution in the fee amount for the Emissions and Safety
Inspection changed from $23.50 to $23.75 and the corresponding amount for the Emissions and
Safety Sticker is changed from $6.50 to $6.25. This change in the fee structure reduces the $.25
70
allocation to the Division of Motor Vehicles from the Highway Trust Fund for the
implementation of the vehicle emissions and maintenance program.
Inspections are required for both safety and emissions systems in the following counties:
Alamance, Cabarrus, Catawba, Chatham, Cumberland, Davidson, Durham, Franklin, Forsyth,
Gaston, Guilford, Iredell, Johnston, Lee, Lincoln, Mecklenburg, Moore, Orange, Randolph,
Stanly, Rowan, Union, and Wake.
The phase-in dates for those counties that require the additional emissions inspections are below:
[Effective July 1, 2004]
Buncombe, Cleveland, Granville, Harnett, and Rockingham counties
[Effective January 1, 2005]
Edgecombe, Lenoir, Nash, Pitt, Robeson, Wayne, and Wilson counties
[Effective July 1, 2005]
Burke, Caldwell, Haywood, Henderson, Rutherford, Stokes, Surry, and Wilkes counties
[Effective January 1, 2006]
Brunswick, Carteret, Craven, New Hanover, and Onslow counties
DISTRIBUTION
Revenue from safety inspections is divided between the inspection station and the state as stated
under "Base and Rate." In addition, revenue from emission inspections is placed under a
separate account, and is used to support the emission program. Only Highway Fund revenue is
shown above.
TAX CALENDAR
Revenue is collected at the time of the inspection.
COMPARISON WITH OTHER STATES
A comparison with other states was not taken.
71
STAGGERED REGISTRATION FEES
All private passenger vehicles, vehicles for hire, motorcycles, certain mobile homes, and some
special mobile equipment are required to be registered with the Division of Motor Vehicles
before such vehicles can legally operate on public roads. A vehicle registration is for a 12 month
period generally from the date the title is issued or transferred.
ADMINISTERED BY
Department of Transportation Division of Motor Vehicles
Table 35
Highway Fund Staggered Registration Fee Collections
Annual Percent of
Highway Fund Percent Highway Fund Tax
Fiscal Year Collections Change Collections
2000-01 147,014,471 1.0 11.8
2001-02 149,565,091 2.0 12.0
2002-03 151,932,070 2.0 12.0
2003-04 158,680,221 4.4 12.0
2004-05 160,037,750 1.0 11.4
2005-06 187,563,245 17.2 11.2
2006-07 199,209,664 6.2 11.0
2007-08 197,432,008 -1.0 11.0
2008-09 195,931,739 -1.0 11.4
2009-10 189,076,290 -3.5 11.0
Note: Increase in fees effective October 2005; partial year collections FY 2005-06
BASE AND RATE
{G.S. 20-87} All private passenger vehicles (automobiles and motorcycles) and all private
property hauling vehicles licensed for 4,000 pounds (private pick-up trucks and vans) are
required to enter the staggered registration plan. A fee of $28.00 is levied on private passenger
cars of 15 passengers or less, and a fee of $31.00 is levied on private passenger cars of more than
15 passengers (Buses). Private passenger motorcycles pay a license plate fee of $15.00, except
when designed to transport property or additional passengers, and the tax is then $22.00. An
additional fee of $3.00 is imposed on the registration of each private motorcycle and the
proceeds are used to fund the Motorcycle Safety Instruction Program.
{G.S. 20-87(2)} U-Drive It Vehicles with the capacity to transport 15 or fewer passengers pay a
license plate fee of $51.00. House trailers pay an $11.00 license fee in lieu of other registration
fees. The fee for busses is $33.00. Automobile Dealers pay $28.00 per plate up to 5 plates and
$14.00 for each plate over 5 plates.
72
{G.S. 20-88(b)(1)} Private pick-up trucks and vans licensed for 4,000 pounds pay a license plate
fee of $28.00.
{G.S. 20-88(c)} Boat trailers, utility trailers and semi-trailers pay a license plate fee of $19.00.
{G.S. 20-85.1} There is a $1 processing charge for registrations by mail.
{G.S. 20-50} The fee to issue a temporary 10 day plate is $5.00.
DISTRIBUTION
Revenue is deposited in the Highway Fund for highway purposes.
TAX CALENDAR
All registrations are for a twelve-month period from the date of the vehicle's initial registration.
COMPARISON WITH OTHER STATES
All 50 states levy automobile registration fees. Fees may be based on vehicle weight, number of
passengers carried, engine size, horsepower, retail price, or some combination of the above.
Rates often vary within a state depending on the vehicle. Tax rates for the typical automobile
ranged from $7.20 to $278.70. The median tax rate for the nation was $67.00. Twenty nine
states had a higher automobile registration fee than North Carolina.
The average rate among the southeastern states (1) and the 11 most populated states (2) was $28.50
and $66.15 respectively. North Carolina ranked second in the southeastern states and ninth
among the largest states. A comparison of registration fees for small trucks and motorcycles
was not undertaken.
(1) Georgia, Kentucky, North Carolina, South Carolina, Tennessee, and Virginia.
(2) California, Georgia, Florida, Illinois, Michigan, Ohio, Pennsylvania, New Jersey,
New York, North Carolina, Texas.
Source: Department of Transportation, “Highway Taxes and Fees 2008”, U.S. Federal Highway
Administration, Washington, D.C., 2008, January 1010.
73
TRUCK LICENSE PLATE FEES
All commercial property-hauling vehicles are required to be registered with regard to weight and
load capacity. Effective January 1, 2006, all commercial property hauling vehicles with an
annual expiration date fall under a staggered registration plan.
ADMINISTERED BY
Department of Transportation Division of Motor Vehicles
Table 36
Highway Fund Truck License Plate Fee Collections
Annual Percent of
Highway Fund Percent Highway Fund Tax
Fiscal Year Collections Change Collections
2000-01 60,570,817 1.8 4.9
2001-02 61,474,240 1.5 5.0
2002-03 61,838,112 0.6 5.0
2003-04 66,816,761 8.1 5.0
2004-05 71,265,550 7.0 5.1
2005-06 126,061,965 77.0 7.5
2006-07 137,651,224 9.2 7.6
2007-08 137,959,629 0.2 7.7
2008-09 134,016,954 -3.0 8.0
2009-10 128,136,502 -4.4 7.5
Note: Increase in fees effective October 2005; partial year collections FY 2005-06
BASE AND RATE
{G.S. 20-88(1)} For the purpose of taxation, the determination of weight is based on combined
gross vehicle weight. A minimum fee of $24.00 for a farm vehicle and $28.00 for a non-farm
vehicle is levied under this schedule.
Vehicles in the truck category consist of private vehicles such as vans and pick-up trucks over
4,000 pounds, and commercial trucks. Commercial trucks generally carry their own products
both interstate and intrastate, but do not operate under the authority of either the Interstate
Commerce Commission or the North Carolina Utilities Commission. They basically include
service trucks, milk trucks, soft drink bottle trucks, beer trucks, and others. There is no separate
commercial truck license plate.
Vehicles in the truck category are subject to taxation according to the following rate and weight
schedule:
74
Table 37
SCHEDULE OF WEIGHTS AND RATES
(Per 100 lbs. of Gross Weight)
Weight/Rate Bracket Farm Non-Farm
Up to 4,000 lbs. $ 0.29 $ 0.59
4,001 to 9,000 lbs. 0.40 0.81
9,001 to 13,000 lbs. 0.50 1.00
13,001 to 17,000 lbs. 0.68 1.36
Over 17,000 lbs. 0.77 1.54
{G.S. 20-88(6)} The annual plate and registration fee for wreckers fully equipped weighing
7,000 pounds or less is $75 and those over 7,000 pounds pay $148.
{G.S. 20-88(6)(c)} A multi-year license plate for trailers or semi-trailers is available for $75. A
multi-year license plate and registration card are valid until the owner transfers the title or
surrenders the plate and registration to the Division of Motor Vehicles.
Replacement plates for all vehicles are $10.
DISTRIBUTION
Revenue is deposited in the Highway Fund for highway purposes.
TAX CALENDAR
Under the annual renewal plates were purchased between January 1 and February 15th for the
current calendar year. As of January 1, 2006, annual registration is staggered.
COMPARISON WITH OTHER STATES
All states levy truck license plate fees. Most states have a fee schedule based on the empty
weight of the vehicles. All states grant some type of preferential tax treatment to farm vehicles.
Rates often vary within a state depending on the vehicle size and weight. Average tax rates for
truck and truck tractors regardless of size and weight ranged from $6.48 to $173.23 as of
December 2008. The median tax rate for the nation was $55.42. Eleven states had a higher
truck registration fee than North Carolina.
The average rate among the southeastern states(1) and the 11 most populated states(2) was $25.65
and $49.66 respectively. North Carolina ranked first in the southeastern states and second
among the largest states.
(1) Georgia, Kentucky, North Carolina, South Carolina, Tennessee, and Virginia.
(2) California, Georgia, Florida, Illinois, Michigan, Ohio, Pennsylvania, New Jersey,
New York, North Carolina, Texas.
Source: Department of Transportation, “Highway Taxes and Fees 2008”, U.S. Federal Highway
Administration, Washington, D.C., January 2009
PART IV
HIGHWAY TRUST FUND TAXES
76
77
THE HIGHWAY TRUST FUND
Highway Trust Fund revenue is used to design and construct the state’s interstate road system.
This system includes primary interstate, NC and US routes and provides supplemental funding
for Powell Bill road maintenance.
The Highway Trust Fund receives support from four primary revenue sources. The first source is
the highway use tax or the sales tax on most noncommercial vehicle sales. The second source is
25% of the excise tax on motor fuels, and the third source is fees on certificates of title and other
miscellaneous title fees. The forth source is from interest earned on cash balances held with the
state treasurer.
Each summary outlines the subject being taxed, the tax rate or rates, total collections, any
distributions made from the collections, and any exemptions. A comparison with similar taxes
from other states is made for most schedules and is updated as often as national data is available.
78
Motor Fuel $ 381,909,743
Highway Use 440,483,265
Title and Registration Fees 82,843,951
Other Fees & Interest 3,913,687
Total $ 909,150,646
Chart 5
North Carolina Highway Trust Fund Tax Collections
2009-10
Title and
Registration
Fees
9% Motor Fuel
42%
Other Fees &
Interest
1%
Highway Use
48%
79
HIGHWAY USE TAX
When a motor vehicle is sold in the state or the title is transferred into the state, the vehicle is
taxed under the use tax. Prior to the creation of the Highway Trust Fund in 1989, the sales and
use tax on motor vehicles was collected under the General Fund.
ADMINISTERED BY
Department of Revenue
Table 38
Highway Trust Fund Use Tax Collections
Annual Percent of
Highway Trust Fund Percent Highway Trust Fund
Fiscal Year Tax Collections Change Tax Collections
2000-01 545,166,755 -0.0 58.9
2001-02 555,320,540 2.0 59.0
2002-03 552,758,579 -0.5 60.0
2003-04 578,346,241 5.0 59.0
2004-05 580,117,766 0.3 58.0
2005-06 577,236,704 -0.5 55.0
2006-07 605,047,356 5.0 54.0
2007-08 563,165,590 -7.0 53.0
2008-09 441,349,902 -22 49.0
2009-10 440,483,265 -0.2 49.0
BASE AND RATE
{G.S. 105-187.3} A 3% use tax with no cap is levied on the retail sales of most non-co